JERSEY CITY, N.J. - It comes as no surprise to hear a panel of venture capitalists discuss their lack of interest in funding the earliest stages of biotech company development these days.
"Most venture funds aren't going to take that kind of risk," said Matt Rieke, a partner with Quaker Bioventures, during the third day of the Biotechnology Industry Organization's VentureForum East conference. Instead, VCs remain product-focused in an attempt to reap the quickest possible returns. Acknowledging that such an attitude produces a "missing link" for early stage companies and ideas, he urged entrepreneurs to look to alternate funding to fill that gap before seeking traditional venture backing.
Along those same lines, others on the panel offered similar advice in warning against premature VC solicitations. Todd Brady, a principal with Domain Associates LLC, estimated that three-quarters of proposals turned down by his firm had been brought forth too hastily. He noted that a lack of clear vision from management also contributes to rejections.
So where are sources of early money? Aaron Davidson, the managing director of H.I.G. Ventures, advised entrepreneurs to be more "scrappy," and Chris Kroeger, a principal with The Aurora Funds, urged a certain craftiness.
Look to standard angel or friends and family investors, panelists said, as well as regional economic development initiatives to provide seed funding to advance programs to the point that a defined product is in hand. In addition, they advocated investments by so-called greenhouse or incubator groups, along with government research grants from the National Institutes of Health. But for many, that money only goes so far, so how can such companies advance to the point that VCs would entertain their proposals?
Perhaps the answer lies in big pharma. Already a common source of funding through partnerships and collaborations, some think large pharmaceutical firms also could fill early funding gaps in a different way - by expanding their own investment funds to finance the early discovery work that clearly has become the milieu of the biotech industry.
That's being done in many cases, but a wider adoption could fulfill needs further for both sides - endowing early stage biotech companies that lack financing and offsetting the pipeline dearth for big pharma.
It's important to note that venture money hasn't disappeared, though. It's there for the right companies with the right stories - and properly advanced products, in general.
All the panelists pointed to a clear investor interest in drugs, particularly products that have demonstrated preclinical proof of concept at a minimum. Taking that into account, they spoke of an appeal for funding companies with products staged a year to 18 months before clinical studies. That, Brady said, signals a notably "earlier and earlier" shift in interest among VCs, "which is a good sign."
The panelists also expressed enthusiasm for companies addressing therapeutic areas with high unmet medical needs corresponding with large market opportunities, as well as those with multiple products. In addition, they all agreed that it's important to tackle a disease area in which proof of concept can be established fairly easily.
"Today, you have to be a lot more capital efficient," said Vipin Garg, the president and CEO of Research Triangle Park, N.C.-based Tranzyme Pharma Inc. If a company can plan "to get proof of principle in man for less than $100 million," venture capitalists will buy into the opportunity.
Brady noted growing investor popularity with companies focused on central nervous system disorders, pulmonary diseases and ophthalmology, though Rieke, Davidson and Kroeger did not identify any particular area of interest these days.
Despite the panel's frank characterizations relative to early-stage biotech companies, several speakers implored management teams to establish an early rapport with VCs before the need arises for such funding. Davidson advised seed-stage companies to visit VCs, particularly those based in the same region. "It's a great way," he said, "to build a relationship" and get a company on the VC radar screen, essentially laying the groundwork for future venture investments.
"Your strongest position is when you don't need money," Brady added, "and you approach VCs."
The conference, which drew 375 attendees, closed Wednesday.