As the biggest venture rounds suck up cash, new investors emerge

It has been clear for some time now that new investors, mainly so-called crossover funds, are having a substantial impact on certain sections of the biotech venture scene. But who are they and what kind of shifts are they causing?

A look at the most active investors of the past five years shows that, while traditional venture firms like Atlas Venture and Alta Partners remain dominant, new names are cropping up. For example the Boston-based crossover investor RA Capital appeared in the top 10 in 2014, and in the first quarter of this year ranked as the most active participant in private biotech rounds. EvaluatePharma data also reveal that the biggest financings are taking an ever larger slice of the cake, meaning that these new sources of cash are leaving a real impression (see tables below).

The trend for private financing rounds to get larger has been driven in part by the need to beef up balance sheets before an IPO is launched. Investors with deeper pockets than the traditional VCs are frequently needed to achieve this – for example hedge funds, or firms with a more agnostic approach to financing, willing to back companies transitioning between the private and public spheres.

This has meant that, on average, private rounds have swelled in size since the IPO window opened, particularly in the US. At the same time the proportion of the pot being taken by the biggest rounds has crept higher. The table below shows that in 2007, the pre-crash year, the top 10 and 20 rounds took shares of 13% and 22% respectively, compared with 18% and 27% respectively last year.

Interestingly, it seems that these proportions have stabilised over the past couple of years. It is also worth noting how in the trough year for venture financing, 2011, the proportions going to the biggest rounds soared as what little money was available veered heavily towards the later and relatively safer bets.

This analysis only includes investments made in companies developing human therapeutics, and excludes medtech and diagnostic plays, for example.

Cutting the data a different way also reinforces this picture. An analysis released last week by EP Vantage showed a leap in the number of $50m-plus rounds last year, from 12 in 2013 to 35, and a jump in the average raised per financing, from $13.9m to $17.5m (Biotech first-quarter venture haul unprecedented since crash, April 22, 2015).

Looking geographically, in the US it was the series Bs that saw a big inflation in average round values last year, while in Europe both A and B financings got larger.

Where the money is going – by proportion and round
Average size of series A Average size of series B
Year Investment ($bn) % of total in 10 biggest rounds  % of total in 20 biggest rounds US ($m) EU($m) US ($m) EU($m)
Q1 2015 1.92 55% 75% 8 8 30 13
2014 6.58 18% 27% 11 22 19 27
2013 4.89 17% 27% 13 10 15 19
2012 4.72 18% 29% 11 7 13 10
2011 4.35 25% 28% 12 10 17 14
2010 4.86 18% 28% 11 11 18 21
2009 4.88 14% 24% 14 9 17 19
2008 4.75 15% 24% 12 15 20 17
2007 5.96 13% 22% 16 14 17 28

A look at the more prevalent investors of the past few years shows who is providing this cash.

Among the more traditional venture firms it is inevitable that the dominant names are those capable of raising substantial funds from which numerous investments can be made. Their ranking will also reflect their own fund's lifecycle – so for example the huge healthcare investor OrbiMed closed a $735m venture capital fund in late 2013, and promptly shot to the top of the table in 2014.

It is also interesting to see how prolific Novartis’s corporate venture arm is, appearing in the top 10 every year since 2010; only GlaxoSmithKline’s SR One comes close to this record.

However it is the new names that are helping inflate average financing statistics. As well as the explicit crossover investor RA Capital, Rock Springs Capital has also moved up the ranking. The hedge fund is a well-known investor in big-cap biotech stocks and has more recently moved into the crossover territory, participating in several notable pre-IPO rounds of the last 18 months, including Spark Therapeutics and Avalanche Biotechnologies.

It is notable that over the first quarter of 2015 four of the top 10 investors in this space could be described as more financially focused than the traditional venture funds. Fidelity has long been a fairly late-stage investor in the private biotech world, as has Deerfield, which strikes many different types of financing deals, although both have participated in a number of pre-IPO rounds more recently.

This picture will no doubt change over the course of the year, particularly if the receptiveness of the public markets fades. However, while there is still money to be made, these new investors will continue to make their presence felt.


To contact the writer of this story email Amy Brown or Edwin Elmhirst in London at news@epvantage.com or follow @EPVantage on Twitter

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