Which VCs Are Poised to Cash In On the Biotech IPOs of 2012?

10/15/12Follow @xconomy

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there are plenty of people holding their breath about what the stock prices will look like when the lock-ups expire, if they haven’t already.

Given that none of the biotech class of 2012 have been absolute screaming home runs, it would be fruitless to hope that this group’s performance will somehow rescue the biotech VC industry just as it’s heading over the cliff. There are still fundamental weaknesses in the IPO market. VCs often need to buy a lot shares to prop up their portfolio companies during the IPO process, and only a very small cadre of public investors has any appetite for biotech IPO shares at all.

History says that a lot of people get burned when the IPO market gets overheated, and thankfully there’s no sign of that happening. If the market gets too hot, a lot of crappy companies are bound to make it through, end up crashing, and give the whole industry a bad name. But when the IPO market is too cold—like it has been past four to five years—it discourages people from starting companies and investing in new ones. Having an IPO market that’s getting somewhere close to balance is important, because it gives entrepreneurs hope, and VCs a chance to make money on their best investments. It also gives the little companies a little more leverage in their talks with acquirers. If acquirers know that small biotech companies have a chance to go public, then they might be compelled to sweeten their buyout offers.

What we’re seeing now is something that seems close to balance in the IPO market. That may not provide much hope for the battered biotech VCs out there, but it’s something. With a little luck, some of those VC firms in the chart above will get the lifeline they need to keep doing what they do for a long time.

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  • Mansour Bassiri

    It was an informative article, thank you!