Kinsella Redux: Charting a Way Back for Life Sciences Startups

9/27/12Follow @bvbigelow

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VC ecosystem where they’ve lived for the past 20 to 30 years,” Kinsella says.

The VC laid out the specifics of his grievances with Big Pharma for me in early 2011—provoking an industry debate that continues today. He has argued that pharmaceutical companies are driving life sciences VCs to the brink of extinction by their buyout tactics, which in his opinion include bad-faith negotiations, lowball buyout offers, and partnership deals that load all the risk on the startup and its VC backers.

Now Kinsella says the effects of what he calls Big Pharma’s “predatory business practices” can be seen on a variety of fronts, as venture firms decide against raising new funds, turn away from further investing in the life sciences, or simply go out of business.

Some examples from the public record include Palo Alto, CA-based Prospect Venture Partners, a life sciences firm that is now tending to its existing portfolio companies after it was unable to raise enough cash to execute its strategy for a fourth fund. Menlo Park, CA-based Versant Ventures significantly downsized its operations and is expected to raise a fifth fund that will be half the size of its previous $500-million fund. Foster City, CA-based Scale Venture Partners decided last year to make no more healthcare investments from its third fund, and as Luke has reported, the Column Group is in a holding pattern on new life sciences investments until the San Francisco-based firm can demonstrate what partner Peter Svennilson called “a couple of spectacular exits.”

Kinsella contends there are many more examples of life sciences venture firms that are in denial—meaning they won’t admit they have ceased making new life sciences or biomedical investments. “They might pretend they’re still in the business, but in effect they’ve retired from the playing field,” Kinsella says. “My gut sense is that two-thirds, at least, of the healthcare venture funds have gone out of business.”

With the flow of venture capital drying up and the overall ecosystem for drug development dramatically downsizing, Kinsella says pharmaceutical companies are beginning to … Next Page »

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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  • http://www.facebook.com/david.edick David Edick Jr

    This is a strong article well worth reading. Thank you. Much of San Diego thinks things are going great in San Diego’s biotech/pharma/life sciences sector. In fact the sector is a mess.