The Early Stage Venture Investment Trap

Lita Nelsen of MIT made an interesting presentation at a recent IBF conferece on commercialization of early-stage biotech IP. Her point, in part: Many universities and labs are being suck(er)ed into investing their own capital in early-stage biotech because traditional pharma licensees have been shy about licensing early-stage IP.

Trouble is, such places don’t have the skills, experience, or capital to make the process work, so they will almost certainly get “trapped”: They will get squeezed badly by later money, or, more likely, will lose most of their money altogether. They are, in effect, confusing a short-run cyclical downturn — the recent lower-than-usual pharma and venture capital appetite for early-stage life sciences IP — with a secular trend that feels the same.

Related posts:

  1. The End of the Early-Stage IPO
  2. Who needs venture money?
  3. NVCA Picks Venture Investment Themes for 2005
  4. Geography-Free Venture Capital
  5. The Institutionalization of Venture Capital

Comments

  1. James Hatton says:

    Thanks for finding the presentation! I really liked it. Rather than a trap for universities, do you think that this might just be the time to “buy low”?
    The sector is out of favor, and the points at the end of the presentation about empty pipelines, ever increasing need, and “of course, the science keeps progressing” are irrefutable. I linked to your post – time to start that little biotech you always dreamed of!

  2. Darren Fast says:

    Interesting post. I think that this is both an opportunity and a risk for the universities. I too have seen the pharma companies looking only at later stage compounds and the VC’s looking to take less risk than they might have previously. I do think that there is an opportunity for new ways of thinking about the commercialization of early stage life-sciences/biotech technologies. Perhaps there is a business opportunity for groups who want to focus only on early stage development who can take numerous compounds in, and then sublicence the winners to big pharma. I also agree that with Lita that the pendulum will swing back and that those groups/institutions who have developed early stage technology will be in a position to win when the investment dollars come flowing back into the sector as investors realize that the pharma companies are or will be desperate for new compounds.

  3. Excellent post.
    I work for a firm that specializes in technology-based economic development firm. We work with emerging regions to help them develop technology-based economies (including biotechnology-based economies). Two of the most persistent problems we see are a lack of available risk-tolerant funding and seasoned management. The two go hand-in-hand. Without local biotech firms, there are no managers with experience in biotech and there are no VCs or angels with experience investing in biotech.
    I recently wrote a paper discussing solutions to these issues: Developing Bioproducts Without Venture Capital in Your Backyard.