Bioe News

Published online: 03 March 2005, doi:10.1038/bioent849

VC funding up, search now on for talent

*Ken Howard Wilan is a contributing writer based in Boston. kenhoward@mindspring.com

Talent rather than money may now be the rate-limiting factor in the emergence of new biotech companies.

The mood of the biotech community is on the upswing, tracking the rise in biotech funding for 2004 over the previous year, according to recent industry surveys, and an expectation that this trend will continue. But the potential for further growth in the sector fueled by the availability of funding could be hampered by the scarcity of talents.

Venture capital investment in biotechnology and medical device companies hit $5.6 billion in 2004, a four-year high, according to a MoneyTree Survey by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association (NVCA)¹. This influx led all other sectors, including software, and accompanied an overall increase in venture funding.

The numbers were even more impressive for total biotech equity raised, excluding corporate alliances: in 2004, the industry saw $20.8 billion in new money coming in versus $17.5 billion in 2003 and $10.9 billion in 2002, according to the trade publication Signals² (see Fig. 1). Although nowhere near the historical high of $31.4 billion in 2000, investment has been rising steadily since 2002.

Fig. 1

		Equity investments in biotechnology. In 2004, biotechnology companies pulled in more money from all types of equity investments compared to the previous year. (Source: Signals Magazine, Walnut Creek, CA, USA)

The increase in available money seems to be going to established companies, according to Robin Bellas, general partner at Morgenthaler Ventures of Menlo Park, California; late stage investment rose by $2.3 billion in 2004 over the previous year. The "trend we saw last year was fewer transactions but larger in size," says Bellas. "It means the investment syndicate wanted to continue investments in companies they believe in."

"Now, as venture capitalists are beginning to invest their new funds, we may well see a shift in focus back to early stage companies," NVCA president Mark Heesen commented following the release of the MoneyTree report.

But with the possibility for funding new companies comes a new problem—lack of talent. "I continue to have more molecules than people," says Brian Atwood, a managing director of Menlo Park, California's Versant Ventures.

		""I continue to have more molecules than people," says Brian Atwood, a managing director of Menlo Park, California's Versant Ventures."

Investors betting on biotech do all they can to reduce their risk, and once a technology interests them, they evaluate available leadership to decide to go forward with an investment. "A full 50% of risk is in the management team," says Chris Christoffersen, a partner at Morgenthaler Ventures. And "you don't have huge numbers of serial CEOs, so there are lots of first-timers."

Yet "young companies want someone who has done it before, they don't want to take a chance on someone new," explains Ruedi Sandmeier, managing director of the executive recruiting firm BioQuest in San Francisco. But "most startups fail and VCs [venture capitalists] don't want somebody who has failed in their last job." So, says Sandmeier, there is a dearth of experienced and successful CEOs out there, and those not already running companies may decide to just sit on boards or go into venture capital rather than put themselves in the 24/7 pressure cooker of running another startup.

Getting the right executives "is often the rate-limiting factor for someone to invest," affirms Jim Audet, managing director of the executive search firm Russell Reynolds Associates of San Francisco.

One possibly growing source of new talent are pharmaceutical companies. "There's so much turmoil in the pharmaceutical industry that people who wouldn't look to moving to biotech are having second thoughts," says Audet. "People at pharma are feeling a lot more exposed and are listening more seriously when someone like myself calls about moving to a biotech company."

But people from "big pharma can't necessarily step into smaller biotech," says Sandmeier. "In interviews, we ask how ... they operate. If they describe themselves as independent thinking and entrepreneurial, those are good traits [for biotech]. If they need a [big] staff, that's not a good trait."

Still, looking for talent seems a better bet than looking for money, and investors say they are cautiously optimistic about 2005.

References

1. Venture capital investing rises to $21 billion in 2004 after three years of decline. PRNewswire, 24 January 2005, http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=109&STORY=/www/story/01-24-2005/0002898165&EDATE

2. Van Brunt, J. Investors fuel biotech's future. Signals Magazine, 18 January 2005, http://www.signalsmag.com/signalsmag.nsf/0/850119357FD4A2AA88256F8D00697198?Open