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skeptical investment committees and trustees that they can make money.
Bruce’s statistics may be right, but they miss the most important point: Being somewhat better than your venture brethren is not good enough to sustain this industry.
For the institutional investor, venture capital falls into the “alternative investments” bucket that includes everything from natural resources to private equity. At the turn of the century, large pension funds generally had an allocation for venture and some even had buckets for bio-venture. Each year that sector received an allocation of capital. A fund manager had only to outperform his peers to receive a commitment.
Those allocations no longer exist. Bio-venture now has to compete with LBOs, private equity, distressed debt, and a whole raft of other choices. The decision is purely financial. Bio brings a twelve-year track-record of single-digit-to-negative returns and 10-15 years of illiquidity in an industry that is (properly) perceived to be among the riskiest on the planet. Under those circumstances is it any wonder that pension-fund managers are skeptical? Going head-to-head with other venture groups is tough; competing with LBOs is virtually impossible with a conventional early stage life-sciences fund.
The aversion is not to biotech itself. Financially driven late-stage funds like Capital Royalty, which recently announced of the closing of a new $805 million partnership, are raising record amounts of money. Unfortunately, few firms specializing in pharma, biotech, or bio-venture have been able to consistently provide … Next Page »
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