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in at least 14 startups since January of 2010. For some reason, the Thomson Reuters data only shows Atlas making six early-stage biotech investments in that period, and just four in the past 12 months.
You can draw your own conclusions on what makes an early-stage investor “active.” As you can see from the table, there are 32 firms that met the criteria I used in this analysis. But if you narrow it down to firms that invested in 10 or more new companies in the last year—which isn’t unreasonable given that an individual VC firm partner can typically handle 1-2 new company investments per year—then the list gets really short, with just eight firms being what you might call “super-active.”
There are a couple of ways of looking at this trend, positive and negative. Either this represents healthy culling of the herd, or it could starve the biotech innovation community of the capital it needs to thrive. Alexis Borisy, a partner at Third Rock Ventures in Boston, takes the glass-half-full approach.
“The industry was overbuilt,” Borisy says. “There was too much capital and too many ideas that should not have been funded that got funded. That’s not a good way to get returns and be successful as an industry. Given the lack of returns, the VC industry has been winnowed back. But at the same time, you do need a certain amount of firms around for the ecosystem to be healthy. It’s good now, but if it were winnowed further, then you might have a problem.”
As Borisy correctly notes, it’s always hard in the moment to say whether there’s enough venture money to support all the good ideas. That’s because it takes several years of work and 20/20 hindsight to say for sure whether an idea was good in the first place.
Stack, a partner at Kleiner Perkins, says she’s convinced that the winnowing of the biotech VC business has made it much harder for compelling ideas to get funded. Many aren’t getting cash at all. But despite the trend away from early stage, and toward late-stage investing, Kleiner Perkins plans to put some of its new $525 million life sciences fund to work in the longest-term, highest-risk, highest-reward category. And she says Kleiner Perkins still has enough VC firms it can syndicate with to spread around the risk enough so everybody is comfortable with what they’re getting into.
“Kleiner has always been focused on building businesses,” Stack says. “That’s pretty much the history of Kleiner. The vision is for building great businesses that are going to affect the healthcare sector, change the way healthcare is practiced. We’ve always been an early-stage focused firm. We still think there are great opportunities in early-stage life sciences.”
The good news is that many of these “active” early-stage VCs appear to be in decent financial shape for at least a few more years. Many of these firms—Third Rock, Kleiner Perkins, Atlas, SV Life Sciences, Sofinnova Ventures, Venrock, Polaris Venture Partners, Domain Associates, Canaan Partners, and 5AM Ventures—have all been able to scrape together new funds in the extremely tough post-2008 financial crisis period.
The big question for life sciences entrepreneurs this year will be whether enough of their brethren will able to join them on the list of successful fundraisers. If they do, they should be in the pole position to keep financing biotech startups with potential to make an impact 10 or 20 years down the road. But if a lot more firms fade away, then we could end up having a generation of biomedical scientists who won’t ever have the opportunity to turn one of their ideas into a growing biotech enterprise. And that would be a shame for science, for the economy, and for patients.
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