A recent paper in Nature Biotechnology (Huggett, 2013) suggests some worrying trends in VC funding in the biotech sector, and a negative impact on start-up financing in the drug and medical device industry in particular. VC financing appears to be at an 8-year low in the US and Europe, by number of deals and deal volume; Europe seems to suffer particularly badly from a decrease in VC firm activity, and investments into early start-ups suffered from the most dramatic decrease in activity in view of all the deals made.

This is happening against the backdrop of all-time high numbers of University spun-out start-ups (with US-based organisations leading the global pack by far), about 50% of which seem to be in the biomedical arena. This trend seems to be caused by two factors: (i) Universities are under greater pressure to convert research outputs into measurable outcomes, and counting the number of start-ups, and employees, is an easier metric than measuring royalties made in complex deals with industry; (ii) entrepreneurship training at/by Universities is creating a growing number of bio-entrepreneurs who prefer setting up companies over employment in the pharma or biotech industry.

In essence, this misalignment of entrepreneurial activity and availability of capital has created a situation where ever larger numbers of start-ups seek funding from a decreasing number of VC investors.

Here is a thought I am pondering: Does this disparity not present an avenue for emerging economies to grow their fledgling biotech industries by way of tapping the pool of scientific and entrepreneurial talent in the developed parts of the world; does it not pose an opportunity for private, and public, capital in need for healthy returns (multiples from VC-backed trade sales of biotech companies rose from 1.8 in 2008 to 6.7 in 2012) in view of a lack of comparative numbers of good-quality projects in these countries; does it not open up an array of possibilities for entrepreneurs in developed nations and partners in emerging economies who are willing to do business in innovative new ways; can it not be leveraged to narrow the imbalance of technology-based industrial development between the US and emerging economies such as South Africa?


Huggett, B. (2013). Biotech’s wellspring: the health of private biotech in 2012. Nature biotechnology, 31(5), 396-403.