How would you describe the investment landscape and how has it evolved in recent years?
More money than ever is flowing into the biotech industry, with venture capitalist (VC) investment in Massachusetts biotechs surpassing $4.8 billion in 2018 (MassBio Industry Snapshot). In addition, we’re seeing other investors enter the scene, with Angel Investors, Disease Foundations, Private Equity Firms, Cross-Over Funds, and Family Offices supporting early-stage funding. At the same time, we’re also seeing more money flowing to fewer companies and larger Series A rounds.
One explanation for this shifting landscape is the venture creation model. Ten or more years ago, it was more common to see a group of VC firms pool their money to invest in a company, sharing both risk and reward. The global economic recession of 2008/2009 helped to precipitate a change in the syndication model, and today many VCs are incubating and creating companies and investing larger sums of money to ensure that companies have enough capital to reach significant milestones.
The unmet medical need around the world is growing; 95% of rare diseases don’t have a cure, presenting endless opportunities to invest in the industry. That is a big reason why more, and varying kinds, of investors are eager to invest – the returns are significant if the company successfully brings a therapy to market.
What do the new or non-traditional investors look like?
There are more types of investors active across different stages of development than there ever has been before, and they’re wielding more influence than previously thought possible.
- Angel Investors: Angel Investors are more active in healthcare and the life sciences than ever before and play a critical role in the development of early-stage companies and especially those that do not need large amounts of capital but require smaller amounts of money to fund a discrete set of experiments that will de-risk/accelerate and demonstrate value for future investors. Angels invest their own money and have become an important component of early-stage funding, and by pooling their investments, they are now participating in later stages.
- Large Pharma: In the past, early-stage funding was the province of VCs and many pharma companies would not invest until companies were at a later stage and more established. MassBio’s Pharma Days program has shown that external R&D is increasingly important to Pharma companies and they have a keen interest in accessing, collaborating, and investing in early-stage companies.
- Disease Foundations: The Cystic Fibrosis (CF) Foundation is one of the best and earliest examples of a disease foundation funding innovation. When the gene that causes CF was discovered in the late 80’s, the CF Foundation began raising money to fund early-stage research. Other successful examples of venture philanthropy are The Leukemia & Lymphoma Society and Multiple Myeloma Foundation.
- Family Offices: Family offices invest in areas they believe in or have a personal connection to and which can provide a double-bottom line with social impact and financial return. It is estimated that two-thirds of wealth of family offices are being passed down to the next generation, and for this group, life sciences offers the rare opportunity to achieve ROI and impact human health.
How do MassBio programs like MassCONNECT and Pharma Days help early stage biotechs get the funding they need?
MassCONNECT de-risks and accelerates the ideas formulated by aspiring entrepreneurs. We match mentors, all of whom have 15+ years of industry experience, to the specific needs and objectives to the entrepreneur. By connecting entrepreneurs to the wisdom and lessons learned that have been created in MA–what we refer to as the “Wikipedia of Life Sciences”- innovators can tap into expertise that otherwise would not be available to them and gain industry exposure.
We have learned that first-time entrepreneurs often lack commercial experience and are bound to repeat the experiments and mistakes that our mentors have already made. Mentors help entrepreneurs define the commercial path by beginning with the end in mind, reverse engineer the steps, and develop a go-to-market strategy to increase their chance of success. We are proud of the success metrics achieved by MassCONNECT graduates: Before enrolling in MassCONNECT, entrepreneurs had received about $7 million in grants. Post-graduation, they have raised over $100 million and secured 13 golden tickets to LabCentral along with 49 partnerships and collaborations with large life science companies. The success is a testimonial to the gift of time and perspective by the mentors, which totaled nearly 1,300 hours in 2018.
Pharma Days® is a premier partnering forum, which provides a significant ROI as we provide a one-stop shop and turnkey forum which connects pharma to companies and organizations they want to, or should, meet. It allows established and early-stage companies, entrepreneurs, tech transfer, clinicians, scientists, etc., to meet the senior R&D and commercial executives, and learn what pharma is working on, what they are interested in, and why.
Over the last 20 years we have seen a steady migration of pharma companies to MA, and they are coming here to access innovation and talent. Innovation Services programs at MassBio exemplify that evolution and are creating a unique portal to source, accelerate, partner, and fund innovation. The trends are favorable for MA as we have a unique mix of critical ingredients – education, innovation, industry expertise, investors, a strong public/private partnership – and the skilled chefs to masterfully blend those ingredients into a recipe that will help Massachusetts maintain its position as the leading biomedical cluster.
To learn more about MassCONNECT, please visit: https://www.massbio.org/discover/massconnect
This article originally appeared in MassBio’s new magazine, The MassBio Insider