Bruce venture 20218/7/2023 Now, these companies are seeking alternatives to the potentially punitive private rounds, by aggressively partnering assets (taking asset dilution instead of equity dilution), or by exploring non-traditional paths to the public markets like reverse mergers. Many of them raised dollops of capital at robust valuations a couple years ago during the “plentiful” times. These charts paint a challenging picture in the private markets: a log-jam of private companies, who expected to go public by now, are now faced with the prospect of down-rounds to access the capital they need. I’d expect the 1Q23 to be in line with that or lower, frankly. The prior 7 quarters of 20, up-rounds were 90%+ of all venture rounds then, in 4Q22, that dropped to only 74% of rounds. With data from Cooley only through 4Q22, life science venture down-rounds have spiked nearly five-fold. Third, as money gets tighter and the investors active in private deals shrinks, pricing comes under pressure. Many of them are, understandably, focused on finding opportunities in the public markets with good risk-return profiles. Based on TD Cowen analysis, their participation is off 60-70% from eight quarters ago. Extending the period from last year, participation by blue chip public investors in large private rounds has been a fraction of what it was in early 2021 these key investors have largely been sitting on their hands when it comes to private rounds. Second, the crossover phenomenon underpinning the prolific IPO window in the recent period continues to sit out of the current market. First rounds as a share of the overall number of companies getting venture funding has hit a historic low in 1Q23 at just 26%. Only a few quarters ago, everyone seemingly wanted to be in the “venture creation” business – not so much the case today, especially with dislocated value opportunities in the micro-cap public markets. According to Pitchbook, less than 60 new startups raised their first round of financing in 1Q23, which is essentially back to 2013-2014 levels, when the decade-long bull run started. Today we’re seeing the impact of the market’s indigestion on the process, and it has real implications for patients and innovation.įirst, after two years of challenging times in the public markets, the pace of venture creation has stalled. During the heady days of the recent bubble, companies raced through this process and got public quickly. To aid in their maturation, public investors often help by pulling companies into the public markets via “crossover” financings. ![]() Venture capital funding of private biotech startups is a process: companies are created and then serially financed as they advance their pipelines (Series A, B, C, and beyond), and if they are successful they either get bought or they matriculate into the public equity markets where they continue to access the funds required for R&D. While the contraction in funding levels is to be expected in rising interest rates, as risky long term capital is disproportionately impacted by higher discount rates, there are a few nuances in the data worth sharing. While the total financing level remains robust by historic standards, with over $4B flowing into private biotech companies in 1Q23, this is a significant drop from the tsunami of funding that washed over the sector in recent years (described in detail in 2020, 2021, and 2022). This has led to the spike in shutdowns, restructurings, reductions-in-force, and “strategic alternatives” across the industry. Yet, despite the pain after a cycle of excess, perhaps this return towards more discipline should be embraced.Īs has already been widely reported, aggregate venture capital funding in the first quarter of 2023 is well off its peaks of 2020-2022. ![]() Access to capital is more constrained than it’s been in years, and companies are starting to feel the pinch. Times remain tough for private biotech venture capital funding.
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