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

Bustling biotech pushes Cambridge, MA surge in VC deals, dollars

Even a casual observer of the biotech industry would know that Cambridge, MA, has seen a booming biotech sector fueled with a steady stream of venture deals. And in a year when venture deals and dollars have been considerably constricted overall, the Cambridge hub has continued to hum with VC activity.

Pearl lands $65M round to fuel PhIII COPD showdown with Novartis, GSK

Pearl Therapeutics has grabbed a hefty $65 million venture round, enough to bankroll the launch of a key late-stage COPD drug program that--one way or another--will prove transformational for the biotech.

MEI Pharma gains $27.5M as it takes another stab at cancer drug development

Just a few months after MEI Pharma ($MEIP) in-licensed a lead cancer program from S*Bio in Singapore, the drug developer put together $27.5 million in private financing to fuel an effort to push the HDAC inhibitor through a key mid-stage study. A pair of venture groups--Vivo Ventures and New Leaf Venture Partners--joined RA Capital Management and Three Arch Opportunity Fund in the raise.

Q3 biotech venture investing makes a boisterous leap

The life sciences industry gained a blast of good news on the venture front today. The National Venture Capital Association and PricewaterhouseCoopers outlined a buoyant set of numbers for the...

Report: Biotech backer OVP Venture Partners winding down

The Kirkland, WA-based venture firm is among the casualties of a sinking venture industry, and its eventual demise means one less source of fresh capital for startups in biotech and other sectors.

Longitude Capital pumps $385M into new life sciences fund

Menlo Park, CA-based Longitude Capital has rounded up $385 million for a new life sciences investment fund, exceeding its initial goal of $325 million. That money will be reserved for biotechs and device companies that have shown promise in mid-stage development or nearing commercialization, targeting a three- to five-year time horizon on payoffs.

Biotech VCs return to back Affimed's cancer drug trials

Affimed Therapeutics has scored 15.5 million euros ($20.1 million) more in venture cash for clinical trials of its drugs that hit two targets with one antibody to kill cancer.

Biotech stars make WSJ's list of top startups as healthcare lags

The Wall Street Journal has put together its list of the top 50 venture-backed companies most likely to do great things. The good news is that Achaogen, a San Francisco-based antibiotics company, and Acceleron, the Cambridge, MA-based tissue- and muscle-building company, are both on the list.

Flagship Ventures CEO keeps Merck aboard to inform biotech bets

Gone are the days when venture capitalists could hatch a biotech and take it public without much regard for the needs of Big Pharma. Public investors seldom buy into new biotech companies, and drugmakers have increasingly become early partners with VC firms and their young ventures. In the process, pharma has gained significant clout in the biotech VC game.

Google VC group eyes biotech bets with $1B purse

Google Ventures aims to invest in entrepreneurs who want to change the world, not only those working in Google's main business areas, but also pioneers in biotech. And the web giant's VC group plans to make life sciences a prominent area of its $1 billion in planned investments over the next 5 years, reported.