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.

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Biotech Venture Capital

Latest Headlines

Latest Headlines

Fledgling Ziarco grabs a $33M transatlantic round for PhII atopic dermatitis drug

Two years after Michael Yeadon and a close-knit group of Pfizer investigators managed to grab some of the pharma giant's anti-inflammatory assets on the way out the door at Sandwich, they've drummed up a $33 million B round for their biotech from some U.S. and European investors. And now they're set to launch a midstage clinical program to help determine the value of what they took with them when launching Ziarco.

What's the #1 biotech hub for VCs? (It's still not Boston)

Biotech investing is sizzling right now, and despite all the attention that the Boston hub gets, the Bay Area is still number one.

Thinking 'big,' Arch Venture gathers $400M-plus to back a new wave of biotechs

Arch Venture Partners has joined a lineup of top venture groups which has been making hay while the market sun shines on biotech IPOs. The VC has marshaled more than $400 million for its new investment fund--its eighth--that will now be available to back a new wave of cutting-edge life science companies, often starting from scratch.

Dermira pockets $51M to bankroll skin treatments

Well-funded biotech Dermira has landed a $51 million C round to support its late-stage dermatology pipeline, rallying some high-profile investors as it dials up R&D spending and builds out its management team.

Venrock unveils a $450M new fund with eyes on biotech

Well-heeled venture capital firm Venrock has pieced together a 7th fund, banking $450 million in new investments as it sets out to grow its portfolio of promising startups.

Sofinnova closes $500M venture fund, keeps late-stage focus

Sofinnova Ventures has evolved rapidly over the past decade to suit the times, from a diversified early stage biotech and IT investor to focusing solely on later stage biotech. And LPs seem to think it is making all the right moves; it has closed a ninth fund at $500 million, the hard cap for the fund that was initially targeting $425 million.

New Science Ventures joins the biotech VC boom, plots $100M fund

With investors revved up about biotech's future, a string of funds have outlined plans to raise billions of dollars to back a new generation of life science companies. And New Science Ventures is joining the frenzy with a $100 million game plan of its own.

Versant close to capping $300M fund to foster next-gen biotechs

Versant Ventures is nearing the finish line in its quest to raise a fresh $300 million fund to finance a new wave of biotech and med tech companies. The group, which is based in Menlo Park, CA, filed papers with the SEC indicating that it has now raised all but a few million dollars for Versant Ventures V, its first new fund since the last big $500 million fund was opened for business in 2008.

Neuropsychiatric biotech raises $20M for PhII program

The biotech is also planning to launch studies for SNC-102 in Tourette syndrome and post-traumatic stress syndrome. Accellient seeded Synchroneuron up to its $6 million Series A from Morningside.

Biotech VCs wager $1.1B in Q1, plus: top 5 rounds

Venture investing in the biotech sector hit the $1.1 billion mark in the first quarter of the year--a surprisingly strong showing for what has generally been a quiet season in the U.S. industry.