New York March 9 - Venture Capital, New Ventures, and Licensing

 A View From The Top

It's always a pleasure to visit Manhattan. The city is awesome.

We had an opportunity to visit several prospective clients and to renew acquaintances with an existing academic client who is starting a new company and wants to work with us on their synthesis – which we pioneered with them. The basis of the company is a license from an academic institution.

Maybe it's fate or kharma, but the underlying theme of the visit was licensing, ventures, and venture capital.

On the 9^th, I attended VC Outlook-BIO, a reception and panel discussion in the offices of Goodwin Proctor LLP, in the 23^rd floor of the New York Times Building. This panel covered the latest situation briefing on capital and start-ups, with emphasis on the biotech / medical sectors.

As the Wall Street Journal expounded, that very morning, capital continues to be tight. The outlook for emerging companies is challenging, because the total raised by venture capitalists in the US was down substantially due to the realities of the financial markets.

 View Inside The Lobby of The New York Times Building

In 2009, total VC investments were $17.7Bn, down 31 percent from the year before. Life sciences were somewhat more fortunate – VC investment was down 11 percent year to year. Furthermore, in light of continuing shortfall of capital intake, the VC industry is preserving capital for existing portfolio companies and private equity investments. Early stage deals, while still happening are more difficult. The profile of investments and funds is also shifting towards higher growth locales such as asia.

For start-ups the picture is complicated by the fact that the emphasis is on relatively de-risked opportunities and programs that have a shorter path to market. VC's are more risk averse, today, and frequently invest in start-up companies that are based on programs in-licensed from large pharmas. In-licensed academic technologies may appear less attractive in some cases, because the academic institutions are placing a high expectation on royalty streams.

Large biotech and pharma firms, who are relatively cash-rich are concentrating on later stage programs where there is a proof-of concept. In the larger biotech and pharmaceutical firms, the goal is to externally source up to 50 percent of their discovery pipelines. This provides a ready exit strategy for cash-starved mid and late stage smaller enterprises, for whom the traditional IPO route is not viable in the present and near-term economic climate.

The last and most poignant question is the fate of start-ups. The old axiom that there's always money for a good idea is slim comfort, indeed. On the academic side, large companies are helping nascent programs get through the “valley of death” by increasing investment in academic programs and licensing opportunities.

The panelists emphasized that access to capital for startups will continue to be constrained for the forseeable future. They offered several important criteria for investment opportunities that they would find attractive:

1. A “disruptive” game changing technology or therapy

2. The quality of the team

3. A straightforward value proposition

4. A clearly delineated path to the market

5. First in class or best in class therapeutic

6. Lower technical and operational risk

7. Lean and efficient business model