By Kim Coghill
WASHINGTON ¿ Panel members at a venture capital conference Thursday said that despite recent slides in the economy, investment money is out there for biotechnology companies that are trying to get off the ground, or just trying to make it to clinical trials.
Although it¿s true that investments were dropping before the events of Sept. 11, Steven Meltzer, senior partner at ShawPittman LLP in Washington, pointed out that venture capital across the board broke all records last year, topping out at $105 billion.
¿I think you need to put this into perspective,¿ he said. ¿Five years ago we were at $5 billion; this year so far, venture capital has raised about $26 billion. While that is a downturn, there are still firms out there interested in raising money and we will continue to see a substantial number of new life science companies being financed.¿
Indeed, through Sept. 27, venture capitalists had invested $2.7 billion in biotechnology companies, about the same amount invested to date last year, according to records from BioWorld Financial Watch. However, initial and follow-on offerings this year have totaled $2.9 billion compared to $14 billion for the same period last year.
¿The IPO market has essentially closed this year for all companies going public,¿ Meltzer said. ¿The IPO market is having serious problems now. Many venture capitalists said the market would be good in early 2002, but many don¿t see that because of recent events. Frankly, many entrepreneurs are saying now is a good time to invest.¿
Meltzer spoke during the BIO VentureForum 2001 conference in Washington, sponsored by the Biotechnology Industry Organization (BIO), the Technology Council of Maryland, NASDAQ, the National Venture Capital Association, TEDCO (Maryland Technology Development Corporation) and The Washington Business Journal.
Meltzer told the hundreds of attendees representing small biotechnology companies and venture capital firms that since Sept. 11 he has attended two similar conferences and each was packed. ¿This is very different than what the media has told us ¿ that people aren¿t investing,¿ he said.
Even though the amount of money for public offerings doesn¿t appear to be substantial now, bids for early and middle-stage companies are becoming more competitive.
But regardless of how the market looks, Dennis Purcell, senior managing director of Perseus-Soros BioPharmaceutical Fund in New York, said a company¿s ability to entice investors largely depends on its operation and method of approaching the investor.
¿When we invest, what we really want to understand is what we are investing in. We find that many companies can¿t explain their business model,¿ Purcell said. ¿We are very impressed when companies have a clear understanding of what is going on in the market and where they fit. But we¿ve been most successful when we¿ve had a good relationship with the management.¿
Other panel members said some investors likely will be more selective in today¿s market.
¿There is more funding available today than there has been at other points,¿ said Farah Champsi, a panel member and partner with Alta Partners in San Francisco. ¿The industry has made significant progress and it is fairly recession-proof. The key message is that the overall market has an impact on the valuations that companies will pay.¿