Biotech venture capital pulls its weight in slim market share

Venture capitalists are in the know that biotech has been one of the hottest sectors over the past few years, but why? According to Bruce Booth, partner at Atlas Venture, a biotech-focused early stage venture capital firm, strong IPO and M&A markets have kept the sector moving upward since 2012.

Booth’s recent article published in Forbes states that, “robust investment activity has enabled a wave of well-funded biotechs to mature with a lower cost of capital than a decade ago.”

Here are some of the top insights from Booth’s article:

The current climate has supported recycling of capital in the venture world.

Booth quotes a recent Silicon Valley Bank report from Jon Norris and colleagues that highlights a “staggering level of potential venture capital distributions from the life sciences: they estimate returns of USD 79 billion since the start of 2012 from both IPOs and M&A events.”

The outperformance of the healthcare industry in 2015 tells us something.

Analysts at Cambridge Associates featured in their commentary the outperformance of healthcare in 2015 even with the downdraft in the second half. “In light of this, and the strength of the sector overall in the past five years, one would think that biotech and more generally life science investing would be increasing its ‘market share’ within the venture asset class,” Booth said. But the opposite is really the case.

Venture capital hit a 15-year low in the second quarter of 2016.

Life science investing, including biotech and medtech, as a share of venture capital hit a 15-year low in the second quarter of 2016, coming in below 15 percent, and biotech investing is hovering near its 15-year lows at just 11 percent of all the venture capital deployed in the second quarter of 2016.

Read the entire Forbes article to view charts and additional outtakes about this juxtaposition in the venture capital market.

Meet executives from venture capital firms looking for partnerships at BioPharm America™ 2016 life science partnering event taking place in Boston September 13–15.