Biotechnology investor David Blech described in Thursday'sBioWorld his strategy for investing in "Fallen Angels" --publicly held companies with potential that have fallen intodistress -- and in start-up companies. In the second part of thisexclusive interview, Blech discusses picking companies andmaking money.
BioWorld: How do you see the venture market?
David Blech: The venture market is still tough, which meansthere are good opportunities there. The entrepreneurs aren'tdemanding the same valuations that they were.
I don't know much about the venture market. I'm determinedto stay out of it as a business.
B/W: Even though you've been involved in start-ups?
Blech: Yes. I'm determined to keep on doing start-ups my way-- the Icos way -- or the Texas Biotech way: raising bigamounts of money, using retail and institutional investors,where the rates of return would probably not be acceptable tothe standard venture capitalist, but are more than acceptableto the retail investor. If you can make 25 percent on his moneycompounded, you're doing a good job for him. (TexasBiotechnology Corp. is a Houston-based start-up developingcardiovascular drugs.)
B/W: So you're willing to take a lower rate of return than thenormal venture capitalist?
Blech: Well, he's really making a mistake; he's misanalyzing it.Even if it only turns into a 25 percent rate of return, my retailinvestor is happy. And there's nothing wrong with 25 percent.You get very rich making 25 percent on your moneycompounded over time. And no retail investors do it, noinstitutions do it, and hardly any venture capitalists do it eitherin the end -- especially over the past 10 years.
B/W: How do you pick a company?
Blech: On the Fallen Angels side, I look for tremendouslyundervalued assets that are selling at 10-to-15 cents on thedollar of what they could be if properly positioned, properlypackaged, properly financed, with the right balance sheets andmaybe a little bit of augmentation on management.
On start-ups, we try to have a broad-based technology that canbe applicable across the spectrum.
B/W: Any other criteria?
Blech: Management. The president's ability to understand thefinancial markets and how to use them. On start-ups, youknow, credibility in the financial market is key. Part of theattraction of convincing someone to come out of a majorposition at a major biotech company is saying, "Look, we're notgoing to spoon-feed you. We're going to give you 30 millionbucks. And let's go."
-- Karen Bernstein BioWorld Staff
(c) 1997 American Health Consultants. All rights reserved.