Showing posts with label Series A Crunch. Show all posts
Showing posts with label Series A Crunch. Show all posts

Wednesday, April 3, 2013

Series A crunch for start-ups rooted in progressive de-risking of VC model?

My comment on a peHUB blog post titled "What Series A Crunch? Why Some Startups Are Immune"


Keen insight John!

Interesting to note the theme of 'venture capital model being broken' is being evaluated from very different perspectives by different people – while I’d love to see the perspective of an LP on this, haven’t come across any till date…

Earlier in Feb 2013 when Drug Baron proposed Venture Capital 2.0 on his blog, I felt he placed the onus for this handicap on the VC firms themselves & hence proposed the need for a disruptive innovation of the venture model itself. I made a comment against this entry & posted the same on my blog under the title “What when the boundaries blur between VC & PE?

While my response was more from the angle of overt de-risking of VC funding being counter-productive to sustenance of early enterprise, I felt that in some fashion resonates with what you say here…., particularly when you quote Jim Andelman “these market dynamics combine to leave good companies unfunded”.

My comments incidentally remain ‘non-commented on’ on Drug baron’s blog :-)

Tuesday, March 5, 2013

What could VCs learn from the recent pharma deals involving biotechs with very early-assets?

My response on the blog post "Preclinical Biotech Structured Deals: Reflections on 2013′s Solid Start" by Bruce Booth - posted on 01/Mar/2013

The news of structured-deals/ buy-outs of ‘tight/ single-EARLY-asset’ biotechs both pleases & scares me… pleases, as I feel this will trigger a healthy change in the way start-ups choose their programs & scary because I (CRO/ CMO) will now start losing clients/ programs much before the conventional PIIA - read-on…..

While I totally agree with the points you’ve raised & the surmises made, I’d like to add the following;

  • This in some fashion is an endorsement of the importance of early venture seeding by the very same stakeholders that typically enable the high value exits for VCs, viz., the mid-sized/ big pharma companies.
  • As you say, there seems to be a promise of reward for innovative organizations that know their science – however I’m not sure if there’s any message about preference for a single asset/ tight set of assets, It is rather a niche focus/ platform & this aspect I’d think always mattered to the investors.
  • Do I also see some de-risking in the form of going in for companies who’s lead/ pipeline candidates are inherently safer (recombinant proteins; antimicrobials et al) & hence highly likely to breeze through Phase-I
  • Interestingly, though the indications are rare/ orphan, the therapies themselves seem to be more maintenance than curative & hence more attractive to the investing company
  • This lure of an early alliance/ deal may now encourage the new enterprises to come up with more compelling technologies rather than me-toos… & thus help put drug discovery enterprise model on a correction course
  • Is this the emerging new avatar of the CVC? - CVC 2.0? (Perdona, Baron.... :-))

Now, having seen a lot of my clients getting lapped up by mid/ big pharma & their programs either killed, shelved in favour of the larger companies competing pipeline, I would be a little cynical till I see the next instalment is released/ option executed.

Finally I would like to ask if there is a message in here for the VCs? – towards an opportunity, a need to structure the initial funding deals differently so that they could still keep an option to enhance their share whenever such early alliances crop-up eliminating  avenue of series-B funding?

Post Thought:

Quite a coincidence that I was just reading an article in HBR (Mar 2013) titled “How Competition Strengthens Start-ups” by Andrew Burke and Stephanie Hussels of Cranfield University.  The authors postulate that exposure to competition in the early stages of a firm’s life increases its long-term survival prospects – competition in this context including competing against a lean-funding scenario & hence learning to stay creative, efficient & productive – Since for all four companies here the early pressure is almost eliminated of by the reasonable/ comfortable funds received (upfront instalment OR buy-out), I was wondering if that makes these companies less long-term in light of the above study.

Of course I do understand that it’d be foolhardy to apply an academic study arbitrarily to any context, particularly in life sciences, where the author’s themselves have made a provision indirectly through their statement “Of course, early competition has a downside: Some new businesses fail before they have time to build up the immunity we describe” which sure sounds like the business of designing drugs.

Monday, January 28, 2013

Drug discovery unable to attract big money! - Is innovation, rather the lack of it to blame?

Some interesting observations on early-stage funding for healthcare from the 2012 Venture Capital Activity Report published by CB Insights (report abstract at this link);

  • Healthcare gets a not-so-insignificant share of 23% of all venture capital in 2012, but the overall investment into healthcare is lower than 2011 numbers, inline with the overall decrease in VC funding from previous year
  • The year also saw overall deal-sizes within healthcare fall from 2011 levels,  again like in other industry segments
  • Within healthcare, medical device & equipment related investments took 40% of the total dollars distributed and this shift of money towards devices & equipment segment has gotten stronger in 2012
  • Within the remaining 60%, drug discovery, development & biotechnology seemed to have got ~35% share, of which chemistry based drug discovery/ development got ~20%
  • and finally, within the 35% share share towards drug development, a majority seemed to have gone towards late-phase funding (>60 %?)

Thus the funding received in 2012 by individual companies towards early stage (discovery pre-clinical et al) seems much lower than the 2011 average (while ~10mio USD seems to be the average deal-value for all phases included, ~2 million USD could be the average value for early phase funding) - I don’t see any reason to believe that 2013 will be any different and if this trend indeed continues, the introduction of new candidates into clinic will continue to lag as before and economizing the cost of discovery & early-development will continue to be a rational strategy to be employed by the small & virtual discoveries - not sure if that'd compromise on innovation further....

The tilt of VCs towards medical device/ equipment segment looks like a commonly employed de-risking strategy of most investors. It also simultaneously suggests a seemingly prevailing weak-sentiment in investor universe towards the quality of innovation happening in biotech & chemical drug development.

While innovation domain should go through its own disruptive innovation now...., any major positive swing from 2012 trend would happen only if GPs (& LPs of course....) innovate their conventional low-risk investment strategies resulting in a) significant increase in number of deals and b) an appropriately incremental average funding on each deal and both towards drug development. 

So when is the new paradigm shift in drug discovery happening & who is going to drive it?