Life sciences company and investment executives debated the current and future viability of the industry model for startup companies, given the tumultuous economic waters it traversed during the so-called Great Recession of 2008-2009. The aptly-named panel (“Wait, Our Model Isn’t Dead! We Just Need to Evolve”) appraised those lean times for biotech in a justifiable effort to explain the dramatic decline of startup generation and flow of available investment funding since the peak of the 2008 recessionary period.
In a sobering forecast, the panelists agreed that there has been a permanent, restructured loss of venture capital funds available to the biotechnology industry for the next few years, pointing the blame at new and competing market interests from other industries, particularly those involved with social and online media technology. The biotech model, however, did not escape the panel’s sight without the panel’s cautious assessment, and entrepreneurs were warned not to ignore historical investment mistakes.
Kurt von Emster, Managing Director at venBio LLC, gave an overview of U.S. boom-and-bust periods in high-tech sectors, framing the Great Recession as a typical economic cycle. During a ten-year market cycle, the worst investments made come to their height of disastrous fruition only after years of public confidence. Specifically, the Great Recession for life science companies was a consequence of poor investments made in the late 1990s. Today, as competition increases between life sciences and other high-technology sectors, such as information technology, the distribution of cash flow to life sciences has and will continue to decrease, requiring entrepreneurs to pursue new and creative investment and licensing agreements.
The panelists used the remainder of the session to concentrate on market differences for entrepreneurs pre- and post- Recession. Brett Zbar, Partner at Aisling Capital, stated that since initial market entry is dependent on cash flow, IPOs have a positive statistical relation to capital availability. This correlation, in boom times, can create an illusion of industry growth or “success” that isn’t necessarily indicative of high-quality, innovative technologies. Alternatively, Zbar remarked, low capital availability is not an indicator of failure, but rather a restructuring of financial opportunities. Brent Ahrens, General Partner at Canaan Partners, noted that the Recession changed entrepreneur’s confidence levels, described as a more modest expectation about and prioritization of exit strategies. Charles Hewitt, Managing Partner at Epic BioVentures, stressed that quality management staff and a streamlined pipeline was a critical factor in all successful investments regardless of the availability of capital, and urged the life sciences industry and investors to take a long-term perspective on investing in order to increase the likelihood of positive, sustainable industry returns.
The panelists recommended entrepreneurs pursue creative, mixed-funding sources such as private and corporate equity funds which, in combination with cost-reduction practices and strong management teams, would provide startups with a needed boost in today’s increasingly competitive markets.