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

UPDATED: The Top 15 Biotech VC firms

Ask any biotech exec in the business of drug and device development about the funding environment these days, and you'll most likely hear the word "tough" inside of three seconds. The...

Syros Pharma snags $30M funding deal to target master switches of cancer genes

With licenses to breaking discoveries from labs affiliated with MIT and Harvard, Syros Pharmaceuticals has raised $30 million in a Series A round of financing from top venture firms.

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

Third Rock Ventures has established its third biotech fund in 6 years, bringing in a haul of $516 million for one of the most active groups of early-stage biotech investors in the world. The new fund, which brings the total it's raised to a whopping $1.3 billion-plus, will be used to launch another 16 or so drug developers.

Will biotech grow in China and India without much VC help?

We've seen plenty of acrimony from the biotech communities in the U.S. and Europe over the insufficient venture capital dollars for young drug developers. Read more >>

Astellas dumps $390M pact with Ambit on eve of IPO

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.

Cosmetics group leads $7M round for dermatology upstart Brickell

Miami-based Brickell Biotech grabbed $7 million in a new venture round led by a South Korean cosmetics company to back its work on new chemical entities for dermatology.

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

Just about every biotech investor out there has been looking for just the right recipe of money, time and multiples to justify the high risk involved in betting on drug development. The decade-long cycle in search of a 10x or better return is in distinct disfavor now, with investors looking for tighter timelines and better odds in exchange for smaller but more predictable payoffs.

Third Rock bankrolls cancer immunotherapy upstart with $47M A round

Third Rock Ventures is committing $47 million to launch a startup biotech focused on cancer immunotherapeutics, one of the hottest fields in drug R&D today.

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.