Written by Shailesh Maingi, CEO & Founder, Kineticos

The National Venture Capital Association and PwC have released the Q2 venture funding report; while the overall investment remains very strong at $15.3b, with software comprising 57.2% of the entire funding, the news for biotech is mixed. Here is a chart from the recent report:

Investment in industry

Click Graph to Enlarge

 

This report is interesting for a number of reasons:

  • Venture funding in Q2 was very strong, with  20.4% increase over Q1
  • Software and IT Services funding increased 70% and 24% respectively compared to Q1

For Biotechnology companies, the news was mixed. Clearly there is a quite a bit volatility from quarter to quarter; here a few of the data points:

  • Compared to Q1, biotech funding is down 14% from $1.95b to $1.69b
  • In Q2, there were a total of 100 deals recorded compared to 124 in Q1
  • The average transaction in Q2 was $16.9 versus $15.7 in Q1

The data we see in this report supports our own research with the Biopharma CEO Confidence Index. Over the last few quarters, there has been a deterioration of confidence in both capital markets and deal landscape; specifically, confidence in the deal landscape dropped from 82% in Q3 2015 to 45% in Q1 2016. Confidence in raising funds from capital markets declined to 18% in Q1, compared to 34% in Q3 2016.

For a longer-term perspective on the biotechnology, take a look at this chart:

Historical Data

Click Graph to Enlarge

 

So what does this data tell us? For one, even with the latest decline, it’s clear that biotechnology funding remains very high from a historical perspective; funding in 2016 is roughly 10x compared to 20 years ago. Clearly, biotechnology is a high risk/high reward enterprise- that’s the nature of our business. Biotechnology is no longer the highly speculative corner of the market, reserved for only a few brave investors who could navigate the science and business complexities. What this data shows us is that biotechnology is now mainstream.

Second, and maybe more importantly, this data validates the underlying science and innovation of biotechnology. It’s difficult to argue that the greatest innovation in the last 25 years has been in biotechnology and software, as that’s where we see the greatest capital deployment. And let’s not forget for a minute that if VC were getting inadequate returns in these areas, capital would stop flowing very quickly. Capital has both validated and enabled these industries, and as this secular trend continues, there is no sign of abating.


    

Shailesh Maingi is the Founder and CEO of Kineticos and has a passion for the role R&D plays in improving healthcare outcomes.  Mr. Maingi is also an adjunct professor at the Kenan Flagler School of Business at the University of North Carolina and serves on the board of directors for a number of biopharmaceutical, diagnostic and contract manufacturing companies.

 Contact Shailesh

If you would like to receive emails containing insights on life sciences topics relevant to you, please subscribe