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
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Author: Standish Fleming
Standish Fleming is a 29-year veteran of early stage life sciences investing. He has helped raise and manage six venture capital funds totaling more than $500 million, and has served on the boards of 19 venture-backed companies, including Nereus Pharmaceuticals, Ambit Biosciences, Triangle Pharmaceuticals (acquired by Gilead Sciences) and Actigen/Corixa (now part of GSK).
He has extensive experience in all aspects of venture management and finance, including fund-raising, investor relations, operations and portfolio development. He has made investments, managed portfolio companies, raised funds, pursued business development, taken companies public and successfully exited investments through public-market sales and buyouts. In 1993, Mr. Fleming co-founded San Diego's Forward Ventures. He has made investments in almost every segment of the health-care industry, including pharmaceuticals, biologics, diagnostics, devices, services, and software. He has managed both platform and product companies, portfolio investments, and led or participated in financings at all levels, from pre-startup to PIPES in public companies, in both debt and equity. He has helped start more than 15 companies and served as founding CEO of eight. Fleming serves as a director of CONNECT, San Diego's support organization for the early-stage community, and is a past president of the Biotechnology Venture Investors Group. Before establishing Forward Ventures, He served as the chairman, president and CEO of GeneSys Therapeutics, (merged with Somatix and acquired by Cell GeneSys [NASDAQ:CEGE]). Fleming began his venture career with Ventana Growth Funds in San Diego in 1986. He earned his B.A. from Amherst College and his M.B.A. from the UCLA Graduate School of Management.
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