Hardly a whisper has been heard from the venture capitalmarket this year. While public offerings for biotechnologystocks have gone out at record rates since February, venturefinancings have been few and far between.

"I can't think of any major seed deals so far this year on theWest Coast and very few on the East Coast," said LawrenceBock, general partner at Avalon Ventures in La Jolla, Calif.

Most venture firms have been focused on getting money totheir existing companies, but there's a real bottleneck in thatmezzanine round as well, said Bock.

The problem is lack of money. The total amount of venturecapital has decreased by two-thirds in the past three or fouryears, said Alan Walton, general partner at Oxford Partners ofStamford, Conn. In 1986, the peak year, $4.5 billion new dollarscame into the venture community from institutional investors,said Edwin Goodman, managing general partner at HambroInternational Equity Partners III.

The 1990 estimate is between $1.2 billion and $1.8 billion ofnew capital. Jane Morris, vice president of investor services atVenture Economics in Wellesley, Mass., who expects to havedefinitive numbers this month, said 1991 numbers will beeven smaller.

Three new funds have been launched, but their money won'tbe available until later in the year. Hambro InternationalEquity Partners III of New York said it hopes to have $15million to $30 million of its funds available to invest in thebiotech sector. Oxford Partners and Matuschka VenturePartners of Boston said they hope to raise $70 million throughtwo new biotech funds, International Bioscience Fund andInternational Bioscience Fund-Japan.

What money there is, is moving downstream in the life cycle ofcompanies. "There's very little money available for seedcompanies or anything with a long maturation, due to the factthat returns have been poor in the 1982-86 time frame," saidGoodman. "Institutions ... are moving their money to later-stagetransactions, which have a lower rate of return but are moredependable."

Companies that used to take seven months to put together --three months to get the people and four months to get thefinancing -- now take 15 to 19 months to get started, said Bock.The delay is on the financing side, as the smaller biotech fundssit on their money until they know where their next fund iscoming from, said Bock.

Later-stage companies are reacting to the squeeze in severalways. One option is to seek a corporate partner, said Goodman.Another is to go directly to the public market through an initialpublic offering.

TOMORROW: The public market option.

-- Karen Bernstein BioWorld Staff First of two parts

(c) 1997 American Health Consultants. All rights reserved.