Innovative Capital

The pessimism surrounding life sciences investment should be tempered by keeping in mind that the sector consistently boasts returns of 15%, far greater than any other sector. The S&P 500, for example, over the same period (2000-2010) returned only 4%.

Despite this there is a very real funding void – especially in Europe – with the number of active investors declining and fund-raising becoming an increasingly difficult activity. This is especially true for early-stage research, with the venture capital community in the face of an increasingly austere financial climate opting for less risky late-stage investments, typically within existing portfolios.

Larger biotechs haven’t been exempt from this shortfall in venture funding either and have increasingly – particularly in the US – become more reliant on debt finance. This is not, however, an option for many fledgling firms engaged in early-stage research.

The increase in the popularity of corporate venture firms (typically the venture arms of pharmaceutical companies) has the potential to alleviate some of these issues.

The significance of corporate venture firms stems not only from their involvement in approximately 20% of all deals in the biotech sector, but from their greater willingness to finance the development of early-stage innovation, compared with traditional venture capital firms.

The appetite for risk, though, amongst these corporate venture firms is not sufficient to meet the demand for capital for early-stage research. As a consequence corporate venturing has been adopted by charities such as the Wellcome Trust and Cancer Research Technology with the launch of their Sigma and Pioneer Funds respectively.

These funds have a specific remit to target early-stage research, the crucial but underfunded phase leading to clinical proof of concept.

Despite all these initiatives venture capital stalwarts concede that much more funding is required, a fact that those at the sharp end of the science will readily concur with. 

Arguably, the aforementioned initiatives in corporate venture funds as well as those associated with the charity and university sectors involve the redeployment of existing funds, and not necessarily the attraction of new capital into the sector.

With returns that consistently outstrip any other form of venture capital investment, perhaps the solution lies in attracting hitherto untapped sources of funding to the sector, rather than repackaging funds from within the industry.

Written By Moharem El Gihani, Lord Ashcroft International Business School, September 2013

The One Nucleus blog is written by individuals and is not necessarily a reflection of the views held by One Nucleus.

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About onenucleus

The One Nucleus blog is written by individuals and is not necessarily a reflection of the views held by One Nucleus.
This entry was posted in November 2011. Bookmark the permalink.

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