Biotech VCs Have a Problem, and it Will Get Worse Before It Gets Better
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signs in many of these notes. Some junior venture partners sent in resumes, and more senior partners sent more subtle job-hunting notes. Quite a few of the folks at these firms don’t have much to say about their future plans, he says.
“There are many groups out there who if you say to them ‘Hey guys, what’s the plan, what’s the future look like for you?’ and they’ll say something like ‘We’re going to work on our existing companies for a while, a year or two, and once we get some exits, then we’ll fundraise.’” Powell says. He adds: “Some of those groups will fundraise, and some will not fundraise.”
Powell’s estimate is that by the end of the year, we’ll see five to 10 more biotech venture firms do something to adjust or restructure. These deals could come in different forms, like what CMEA did by splitting off $20 million for Velocity, he says, or in some cases, firms will merge. “You won’t see that many people just roll up the carpet and say ‘we’re not raising a new fund,’” Powell says.
The Column Group’s Svennilson said he thinks biotech VC shrinkage could be a good thing, as long as the surviving firms are able to pump a similar amount of overall money into startups. “When we started, we felt there were way too many companies getting started,” Svennilson said. “We felt the best ideas should get funded, not all of them.”
I think there’s some wisdom in that approach, that the pressures VCs are facing today will force them to adapt to the new environment. There are some interesting and healthy experiments going on today in new biotech venture models. But the trend in venture capital today is tilting away from life sciences, and toward IT, in a worrisome way. If biotech VCs don’t really can’t find a way to adapt, then in a few years we can expect thousands of Facebook wannabes crawling all over the U.S. and hardly any Genentech wannabes.
Given how much opportunity there is in biology today, I’ve got to believe that entrepreneurs and investors will find a way to harness it over the next few years to reinvigorate the whole industry. Taxpayers will invest billions in basic research at the National Institutes of Health over the next decade, and somebody needs to figure out how to apply the discoveries that will come out of that work in the business world. It will be a real shame if it’s not the venture capitalists who do that.