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

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Latest Headlines

NEA provides $10M to help fuel next-gen cancer R&D at Cleave

Closing in on the selection of its lead cancer program, San Francisco-based Cleave Biosciences has welcomed the deep-pocketed player New Enterprise Associates to its list of venture backers and topped up its Series A with a $10 million investment in its early-stage drug research work.

UPDATED: Third Rock Ventures adds $516M fund to back new portfolio of biotechs

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Talk about bad timing. Just days after San Diego-based Ambit Biosciences stepped up to confidently announce its second try at an IPO, its partner Astellas unceremoniously dumped its $390 million partnership on a portfolio that includes the biotech's lead development program.

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NC development team nabs $5M angel tranche for its latest biotech play

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Venture firm preps $100M fund for late-stage life sciences investments

Following a well-defined trail of venture groups into late-stage investing, San Francisco-based Foresite Capital Management says it has wrapped a $100 million fund that will be heavily focused on the most disruptive and most promising late-stage technology it can find in biotech, genomics and diagnostics, among other healthcare fields.

Langer biotech adds $16M in venture cash to back next-gen cancer drugs

The startup biotech Blend Therapeutics rang in 2012 with seed cash and will now close out the year with a fresh injection of $16 million in B-round bucks budgeted to take this startup--one of the latest from the prolific scientist Robert Langer--right to the threshold of clinical development.

Apple Tree inks $305M drug deal for new portfolio game plan

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