VC funding zooms back with biggest quarter since 2009

Data Insights

The sputtering start for biotech venture capital funding turned into a more confident chug as the middle of 2013 approached, as three large rounds helped push the total support for closely held companies to their best quarter in nearly four years.

With more than $2bn raised through June 30 by companies developing human therapeutics, the sector is now on track for a decent year, which should come as a relief after Q1 came in as the worst in recent memory – falling short even of the post-crash Q4 of 2008 (No bubble for biotech VC funding as first quarter flops, April 29, 2012). It is too soon to say whether the start of the year was a hiccup – however, it followed two consecutive billion-dollar quarters, and as such could have been a simple matter of timing (see tables).

Quarterly VC investments
Financing date Investment ($m) Financing count
Q2 2013 1,515 76
Q1 2013 524 60
Q4 2012 1,455 83
Q3 2012 1,176 65
Q2 2012 766 83
Q1 2012 926 103
Q4 2011 1,151 84
Q3 2011 739 64
Q2 2011 1,299 85
Q1 2011 845 81
Q4 2010 1,089 88
Q3 2010 1,206 87
Q2 2010 1,399 109
Q1 2010 1,077 92
Q4 2009 1,551 111
Q3 2009 980 82
Q2 2009 1,033 77
Q1 2009 1,415 101
Q4 2008 897 71
Q3 2008 1,390 88
Q2 2008 1,073 77
Q1 2008 1,256 82

Reversal of fortune

With biotech equity markets flirting with record highs, the initial public offering window as open as it has been in years and growing M&A interest, it stands to reason that VC funding should be strong – after all, today’s mature venture-backed group could be exiting tomorrow. Thus it was startling to see that so little venture fundraising had happened in the first quarter.

So there must be relief all around that activity accelerated as 2013 has progressed. It may not be a huge surprise that there was a bounceback – after all, the data show that on average the second quarter is the strongest one for biotech venture financing. The size of the jump, however, is a bit of a trend-buster – more than three times as many venture dollars flowed into private groups in the second quarter than the first.

The current run rate will put 2013 at about $4bn on the year, matching the lowest total in the past seven years, notched up in 2011. With the first quarter having been such an outlier, it seems reasonable to hope that well in excess of $2bn will be raised in the second half of the year, however – average VC totals for the second half of the year from 2008 to date are about $2bn, although last year the sector exceeded this mark by $631m.

Annual VC investments
Financing date Investment ($bn) Financing count
H1 2013 2.0 136
2012 4.3 334
2011 4.0 314
2010 4.8 376
2009 5.0 371
2008 4.6 318
2007 6.0 347

Fewer but bigger

The quarter was helped along by three late-stage fund-raisings in the $100m range or more, with Virginia-based Intrexon netting $150m in a series F. This seems to be in keeping with a trend for the year – fewer but bigger rounds. In the second quarter, the 75 fund-raisings averaged about $19.9m each, compared with $12-13m in the past two years.

In parallel, a greater share of money has been raised in later rounds this year: 53% of the money raised was at series C or later, compared with 29% in 2012 and 34% in 2011. The difficulty of getting away in an IPO and the haircuts taken by those that manage to are no doubt factors in biotechs going to later rounds backed by venture funders. One can plausibly predict that this will not be a lasting trend as IPOs become a more attractive prospect, with this year’s class by and large in the black since flotation (Floats rise out of the biotech bubble at last, July 10, 2013).

With such a strong second quarter, the worries that emerged during the first months of the year have surely eased – in spite of the high risk of failure when compared with software development, biotech is probably becoming an easier sell to investors as they see how it has rewarded public equity investors. Sentiment towards pharma and biotech has shifted markedly in two years, and VC-backed companies were bound to benefit as surely as publicly traded groups.

Venture capital investment rounds
  Total investment ($m)   Total finance deals   % Investment per financing round
Financing round H1 2013 2012 2011 2010 2009 2008   H1 2013 2012 2011 2010 2009 2008   H1 2013 2012 2011 2010 2009 2008 5yr average (08-12)
Seed capital 13 23 28 36 26 27   9 16 22 23 20 13   1% 1% 1% 1% 1% 1% 1%
Series A 402 726 1,047 942 1,305 1,095   36 68 86 89 103 90   20% 17% 26% 20% 26% 24% 22%
Series B 248 889 977 1,283 1,031 1,109   15 56 51 63 60 61   12% 21% 24% 27% 21% 24% 23%
Series C 498 496 434 1,023 809 904   19 23 22 50 43 37   24% 11% 11% 21% 16% 20% 16%
Series D 131 577 375 225 497 397   7 18 17 18 23 12   6% 13% 9% 5% 10% 9% 9%
Series E 298 150 355 63 46 145   5 7 8 4 5 4   15% 3% 9% 1% 1% 3% 4%
Series F 157 25 61 174 303 110   2 3 3 3 10 2   8% 1% 2% 4% 6% 2% 3%
Series G - 50 127 78 - 27   - 1 2 1 - 1   - 1% 3% 2% - 1% 1%
Series H - - - 10 - -   - - - 2 - -   - - - 0% - - 0%
Series undisclosed 293 1,387 630 935 962 802   43 142 103 123 107 98   14% 32% 16% 20% 19% 17% 21%
Annual totals 2,040 4,323 4,033 4,770 4,979 4,616   136 334 314 376 371 318   100% 100% 100% 100% 100% 100% 100%

To contact the writers of this story email Jonathan Gardner or Joanne Fagg in London at news@epvantage.com or follow @JonEPVantage or @JoEPVantage on Twitter

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