Most new drug companies start small, with few staff members and little money. So in exchange for equity in their company, biotechs can raise much-needed cash from venture funds looking to invest in a technology early in order to earn a big pay-off down the road. Experienced individuals from the venture capital firms usually play a key role making decision and guiding the new company through the development process. 

Venture capital funds will, at various stages, provide fresh infusions of cash if a biotech's program shows promise and continues to move through the clinic without hitting any major speed bumps. Ideally, the drugmaker will exit when the it's in a position to demand a premium price. Promising Phase II or, better yet, Phase III data could tempt a larger company to make a pricy buyout offer. Alternately, some developers attempt to raise money by filing an IPO. This is a gamble at best. While some high-flying developers like Pacific Biosciences have had success on the open market in recent months, investors still lack an appetite for small developers with no drugs in the market and the risk of an FDA delay or rejection looming in the future.

In 2010 biotech venture capital investing began to recover from its 2009 low, growing three percent in the number of dollars raised and eight percent in the number of deals which were struck. That represents a significant bounce-back from 2009, which saw biotech investing plummet 19 percent during the worst of the economic crisis. The industry dropped to second place overall behind software, with $3.7 billion going into 460 deals.


Biotech Venture Capital

Latest Headlines

Latest Headlines

Glaxo, Atlas syndicate bankrolls Spero's drive into the clinic with $30M round

Eight months after wrapping its first venture round with a $30 million bankroll, Cambridge, MA-based Spero Therapeutics has gone back to the well for $30 million more.

Backed by J&J and Glaxo, veteran VC group splits from Index, unveils $227M fund

The biotech team at Index Ventures is splitting away to focus exclusively on what they do best: jump-starting new therapeutic programs in Europe.

Iconic Therapeutics snags $40M for eye disease R&D

South San Francisco's Iconic Therapeutics raised $40 million in Series C cash to support its work on treatments for eye cancer, moving toward clinical trials with its ocular melanoma program.

Scholar Rock bags $36M to fuel muscle-wasting drug program, first clinical study

With an eye to jumping into the clinic with a lead drug for muscle wasting while building up a pipeline of drugs that target key growth factors, Scholar Rock is refueling for its next stage of development with a $36 million B round from a group of investors led by Fidelity Management and Research.

With Big Pharma backing, eFFECTOR plots solid tumor trial with $40M round

More than two years after landing a hefty launch round, San Diego-based eFFECTOR Therapeutics has scooped up a $40 million financing from an expanded group of investors, putting the biotech on track to jump into the clinic with a Phase I/II study of its lead cancer drug.

Navitor grabs a $33M round as it carefully navigates toward the clinic

George Vlasuk and his biotech crew at Navitor have lined up a $33 million round designed to get the first snapshot on clinical efficacy for its platform play.

China's WuXi raises a $290M VC fund with eyes on 'cross-border' biotech bets

WuXi PharmaTech, China's largest CRO, closed an oversubscribed $290 million venture fund, turning its attention to biopharma startups at home and in the U.S.

$37.5M in hand, Termeer-backed X4 maps a fast pace on cancer immunotherapy R&D

Over the last 18 months Genzyme founder Henri Termeer has been helping organize and finance a new biotech called X4, which has taken up residence in Cambridge, MA, and is now going public with a $37.5 million A round and a plan to make its mark in the hot field of immuno-oncology.

UPDATED: With Roche in the rearview mirror, Constellation Pharma grabs $55M round

About four months after Roche completed its slow-motion decoupling with Constellation Pharmaceuticals, the biotech has moved ahead with a $55 million venture round.

UPDATED: Eyeing pivotal PhIIIs, Margolin nabs $53M crossover round for Allena

Prepping for a pivotal Phase III program, Newton, MA-based Allena Pharmaceuticals has rounded up a few key crossover investors to help provide a $53 million round just weeks after claiming success for their lead drug in a small, single-arm proof-of-concept study.