Blood from a Stone: Who is Left in Life Science Investing Today? (July 11, 2013)
Recap by Carly Holstein, University of Washington, Bioengineering
This year’s Life Science Innovation Northwest ended with fireworks in the final panel discussion, “Blood from a Stone: Who is Left in Life Science Investing Today?” The discussion, referred to facetiously by one attendee as the “There Will Be Blood” panel, featured passionate and pointed arguments about the future of life science investing, with a heated debate about the role of crowdfunding.
The panel was skillfully moderated by award-winning life science journalist Luke Timmerman (Xconomy). The expert panelists included Diana Frazier (Founding Partner, FLAG Capital Management), Charlotte Hubbert, PhD (Associate, H.I.G. BioVentures), Talat Imran (Principal, InCube Ventures), Tracey Mumford (Senior Associate Director, The Michael J. Fox Foundation), Gregory Simon (CEO, Poliwogg), and our very own Washington State Treasurer, James McIntire (Chair, Washington State Investment Board).
After introductions by each of the panelists, the major theme of the discussion evolved: why is traditional venture capital (VC) investment in life sciences and healthcare so low, and how has that impacted the investment landscape? Frazier stated that only 12% of FLAG’s portfolio over the last 18 years has been in healthcare, and McIntire added that only a small percentage of the state’s investments are in this arena as well. Frazier elaborated that this low level of investment in healthcare is primarily due to the low returns achieved in this sector. For example, “big wins” in life science and healthcare ventures typically return five-to-twenty-times the initial investment, while VCs can make 100x-500x returns on information technology (IT) companies. Early-stage life science companies are particularly risky investments, and it is important for all potential funders to distinguish which companies are at the leading edge of technology and are attractive investments, versus those that are at the bleeding edge and are too risky. Imran offered that one distinction between leading edge and bleeding edge companies is the ability to demonstrate the clearance of early hurdles.
The need for funding of early-stage life science companies has spurred a rise in non-traditional routes of investment, including venture philanthropy. This type of funding is a focus of the Michael J. Fox foundation and was explained in detail by Mumford. Through venture philanthropy, companies can obtain funding—via grants or equitable investments—from charitable organizations who believe the company’s products would support the mission of the organization.
The second major type of non-VC investment that has emerged is crowdfunding, which was the source of intense debate among panelists. Simon, the CEO of crowdfund-enabling platform Poliwogg, championed the rise of crowdfunding and the ability to tap into millions of potential investors who have, to date, been completely left out of early stage startup investing. This democratization of capital was further applauded by audience member Sailesh Chutani (CEO, MobiSante), who argued that crowdfunding would actually save the VC industry. The resident VCs on the panel, Hubbert and Frazier, contended that crowdfunding would result in an overflow of deals in the early stage pipeline that will be unable to raise the millions of dollars required to get across the goal line. Additionally, they believe that casual investors in life science deals will invest emotionally, without fully understanding the huge risks of these types of investments. Imran suggested that this could taint the entire life science sector as an investment class, and Frazier boldly stated that she believes “crowdfunding will end badly.” Hubbert added that her vast scientific training and experience is what makes her a successful investor, provocatively stating, “Yes, I am an elitist. I am the best, and I am looking for the best.”
Other panelists fell somewhere in the middle of the debate, seeing value in both VC funding and crowdfunding. Timmerman closed the panel by prophesying that in five years, the elitist VC will only be a part of the VC landscape, and that other pieces, such as venture philanthropy and crowdfunding, will also play significant roles.