Imagine for a moment you’re a hotshot biomedical scientist at a university. You have invented a technology in your lab that you think has potential to make a big difference for the world of medicine. Despite all the accolades you might be getting in Nature, you are savvy enough to know you still have a pretty raw concept. Your idea needs someone who can build a business around it, and invest a lot of time, money, and talent to prove it’s the real thing.
Who would you call?
There aren’t that many people who you can call anymore, and the number is shrinking. This question has been gnawing at me for a while, as I’ve sought to understand the historic contraction that’s occurring in the biotech venture capital business, and what effect it will have on the biotech industry’s ability to turn bright ideas into valuable new healthcare products.
Much has been written about the venture financing stats, which aren’t pretty. About $780 million of venture capital went to life sciences companies in the first quarter of 2012, a breathtaking 43 percent drop from the prior quarter, according to the MoneyTree Report from PricewaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Reuters. What’s even more disturbing is that the vast majority of that money went to existing companies with products in late-stage development, not to startups. Despite some fascinating advances in the basic science of genomics, microRNA, drug delivery, diagnostics, vaccines and more, the amount of money for first-time company financings fell by 60 percent in the first quarter to $120 million. Only 21 companies in the U.S. got their critical first financing in the initial three months of this year—in a country where Ernst & Young counts 1,870 public and private biotech companies.
Less money is going into the industry, and this isn’t a one-time quarterly blip, it’s a long-term trend. The VC industry has already contracted dramatically, as there were 1,022 active firms during the tech bubble year of 2000, and just 462 active firms were left in 2010, according to the National Venture Capital Association. The NVCA definition of “active” includes firms who invested at least $5 million into companies in the past year. But the number of active firms is still declining, because many firms raised their last funds before the financial crisis of 2008. Most of that pre-2008 money has been invested already in companies, and the VCs can’t go back to hit up their friends at pensions, endowments, and foundations for more money, at least until they can generate better returns. With slim odds of taking their portfolio companies public or striking a big acquisition by a Big Pharma company, the biotech VC industry has been withering on the vine the past four years.
Maybe because I’m a startup guy myself, I’m more interested in finding out who still can do interesting things in biotech rather than spending too much time wallowing in pessimism about the new “zombie” VC funds. So I’ve attempted to put together a list of which biotech VC firms are still truly active in the early-stage investment game. It’s not quite as easy a question to ask as it looks, since I needed to come up with my own satisfactory definition of “active.” But after chatting with a handful of VCs who make their living in this arena—Risa Stack of Kleiner Perkins Caufield & Byers, Alexis Borisy of Third Rock Ventures, and Bruce Booth of Atlas Venture—I’ve come up with the following criteria. “Active” for the purpose of this exercise, includes VC firms that made investments in at least four early-stage life sciences companies (biotech and medical devices), and invested at least $12 million in the sector during the 12-month period that ended March 31, 2012. The data below comes from the National Venture Capital Association, which uses information from Thomson Reuters.
| VC Firm | # of ES Bio Co Investments | Sum of Equity Invested |
| Domain Associates | 16 | $68.4m |
| Third Rock Ventures | 16 | $68.1m |
| NEA | 15 | $154.1m |
| Polaris Venture Partners | 13 | $39.9m |
| ARCH Venture Partners | 11 | $41m |
| Flagship Ventures | 11 | $26.2m |
| Versant Ventures | 10 | $73.6m |
| HealthCare Ventures | 10 | $21.1m |
| Kleiner Perkins | 8 | $50.6m |
| Morgenthaler Ventures | 8 | $29m |
| Canaan Partners | 7 | $32.5m |
| InterWest Partners | 7 | $29.3m |
| Venrock Associates | 7 | $27.6m |
| MPM Capital | 7 | $22m |
| Novartis Venture Funds | 7 | $15.2m |
| OrbiMed Advisors | 6 | $37.3m |
| The Column Group | 6 | $35.2m |
| TPG Growth | 6 | $27.8m |
| Novo A/S | 6 | $22.6m |
| ATV | 6 | $18.2m |
| Aisling Capital | 5 | $27.6m |
| Adams Street Partners | 5 | $25.3m |
| Essex Woodlands | 5 | $24m |
| Frazier Healthcare | 5 | $23.2m |
| Bessemer Venture | 5 | $18.3m |
| Latterell Venture | 5 | $15m |
| Sofinnova Ventures | 5 | $13.1m |
| Atlas Venture | 4 | $30.8m |
| 5AM Ventures | 4 | $22.6m |
| Excel Venture | 4 | $18.7m |
| SR One | 4 | $18.4m |
| Lilly Ventures | 4 | $12.1m |
| Source: NVCA, Thomson Reuters |
A few caveats are in order. There are several “undisclosed firms” who show up in the rankings, which I cut out of this chart. The Thomson Reuters data may not accurately capture everything that’s considered “early stage,” because it defines that group of companies as ones who have “a product or service in testing or pilot production. In some cases, the product may be commercially available. May or may not be generating revenues. Usually in business less than three years.” There are also firms on this list who are dialing back activity like The Column Group—and there’s at least one instance of a merger in the works, between Morgenthaler Ventures and Advanced Technology Ventures’ life sciences units. Plus, the data set has some holes. Atlas’s Booth, for one, says his firm has invested
