Walk into any funding firm and you will see mountains of papers summarizing this company's dream and that company's vision.
It's no easy task for venture capitalists to weed through the bulk and find a gem. Often, they may even overlook a great opportunity in favor of another one recommended by a friend.
"There's a lot of stuff that we dismiss fairly quickly," said G. Steven Burrill, CEO of San Francisco-based Burrill & Co. "Part of the trick in the trade, so to speak, is you've got to get us interested superficially, so we can decide if we're really interested."
With millions of dollars bobbing above the surface from venture capitalists and new funds being formed regularly, biotech company officials need to know how to swim to a profitable shoreline. Without a clear plan for profitability, or even additional sources of revenue, a company has a very slim chance of getting funded these days.
Yes, the dollars are out there, but investors have raised eyebrows and tight money clips, thanks to corporate scandals and FDA blowups.
"I think that the investment community today is much more focused on getting to a cash-positive state as soon as possible," said Jim Tullis, a partner with Greenwich, Conn.-based Tullis-Dickerson & Co. Inc., "so small companies should be looking at places where they can generate revenue to a profit early in their development cycle."
In the past few months, at least five investor firms have closed on life sciences funds amounting to more than $800 million.
Tullis-Dickerson closed on its fourth and largest fund, $122 million, and plans to invest in seed through mid-stage companies in the areas of life sciences and biotechnology, as well as health care information technology and informatics, medical device systems and health care systems.
Burrill & Co. completed the first closing of its $250 million fund with an available $67 million for biotechnology opportunities. It is the firm's seventh fund.
Another California firm, 5AM Ventures, of Menlo Park, closed a $25 million fund focused on early stage life sciences companies. The money is being split between Bay City Capital LLC and Versant Ventures and will be used to fund about seven to nine companies, with an average investment of $4 million each.
Also, HealthCare Ventures LLC, of Princeton, N.J., closed on $277 million, part of a larger $350 million fund. And Odlander Fredrikson Group, of Stockholm, Sweden, and Lausanne, Switzerland, serves as investment adviser to a fund with US$322 million in committed capital. The fund, HealthCap IV, focuses on the Nordic region and Western Europe.
So the money is out there, but so are the young, start-up companies and the mid-stage companies that need it.
"We'll talk to just about anybody," Burrill told BioWorld Financial Watch. But Burrill & Co. prefers to invest in companies that have intellectual property and proven management. Earlier-stage companies need to look for seed capitalists, he said.
Both Burrill and Tullis said their firms invest in about one out of every 100 deals that they see. Burrill may spend hours looking at one deal and only seconds looking at another. "If the executive summary isn't compelling, you may never get much beyond that," he said.
Tullis said his firm wants to invest in technologies that are going to have a major effect. Investors also want companies that can generate income outside of venture capitalists, he said. Companies need to have a business development strategy to acquire small product lines, or to somehow gain revenue from relationships with other companies that would pay for certain rights to access technologies. They also could gain revenue by obtaining government grants to help sponsor their research.
"All of these would be methods of getting cash into the company without simply using venture capital dollars to get them through the long cycle of R&D," Tullis told BioWorld Financial Watch. "It's a pretty deep pit in terms of the number of years and the dollars that need to be spent."
Tullis-Dickerson focuses on investing in seed and lead rounds, then further down the road helps in the business development process. The firm put up the capital in 1996 to form Birmingham, Ala.-based TransMolecular Inc. It invested, created the board and hired the CEO.
"I'm happy to say it has a drug in human clinical trials to treat cancer, specifically glioma," Tullis said. "While it's early, we're certainly pleased at the results of that company today."
In September, TransMolecular was issued a U.S. patent on chlorotoxin, a substance derived from scorpion venom, which is the lead compound in 131I-TM-601, the drug that is in Phase I/II trials for glioma.
Burrill said sometimes it's necessary to bring in management as a condition of investing in a particular company.
"It's a lot easier to build a good technology with a great management than a great technology with a weak management," he said.
Biotech companies that have good management will get their financing requests placed on the top of the pile, along with deals recommended by friends of the investors, he said.
"We're obviously interested in things that aren't just crazy ideas and don't have a prayer of getting anywhere," Burrill said, "but in companies with good clinical data, good management, a good market and something fairly protectable."