VC Investor Panel: Building the Future Champions
Watch a replay of the live session here or read our top takeaways below…
Optimum’s recent 13th Annual Healthcare Investor Conference featured Stephen Hansen, Associate Editor, BioCentury, who chaired a panel of leading venture capitalists (VCs). Roel Bulthuis, Managing Partner, INKEF Capital; Søren Møller, Managing Partner, Novo Holdings; Otello Stampacchia, Founder, Omega Funds; and Maina Bhaman, Partner, Sofinnova Partners participated in a lively discussion which focused on investing in early-stage companies and the success criteria for building future ‘champions’.
The changing face of European venture capital
Venture capitalists are raising record amounts of cash which is pouring into the life sciences sector. At the 9-month mark, 2021 was already the second-largest year (behind 2020) for biotech venture, IPO and follow-on financings since 1994. According to BioCentury, at the end of Q3 2021, just under $80 billion financing was raised to fund biotechs globally, with nearly $30 billion coming from venture funds.
The panel said how funds today are bigger across the spectrum, with a mixture of strategies. Money/cash available in Europe is significant but has not kept up with the buoyant amounts available in the USA.
There is a bigger pool of talent as capital has grown. VCs have become a bit more flexible about where and how they build teams – not everybody has to be in the same location anymore. Exits have also seen talent recycling into newly created companies, having seen the benefit of success. It is not yet comparable to the US where management teams have gone through several innovation cycles.
The first generation of possible repeat entrepreneurs comes from an environment where VCs in Europe were drip-feeding companies, and not building a company with a large management team. US companies had more C-suite execs and so created more repeat entrepreneurs. In the last five years European VCs are building companies differently, building fully fledged management teams and creating a new, bigger generation of repeat entrepreneurs.
The pandemic has made people think hard about flexible locations, and there are pros and cons. There is a premium for people who have an existing network and, the virtual model is a disadvantage to juniors across every industry around the globe, including VC juniors.
There remains a big differential in the cost of talent between the US and Europe (inflation on executive compensation is about 10-15% p.a. in the US). The panel also felt stability of European C-suite teams is an advantage for European companies.
The partnering debate
In the early 2000s 30% of drugs came from biotech discovery, now it’s up to 70%. Biotech is extremely vital for pharma. Eventually what creates most value is drugs that progress in the clinic. Funds that invest in platforms want to see drugs make progress, so prefer to take on more early-stage deals.
Pharma wants access to novel science and finds it easier to do a deal with a small company with early assets, and because they are worried about increasing valuations and bull markets which drive their decision making. Despite these conditions, the VCs feel companies need to consider what stage is the best to partner at, and discipline is important in the face of available capital and options.
The tailwind in capital markets has been tremendous in the last few years and while volatility has increased recently, there is still a robust flow of money. Recent research shows the amount of capital raised between EU and US is similar, but liquidity is different (10x or 15x more in the US).
VCs are incentivised to access the most liquid public markets; European markets are harder for VCs to exit. While there are $60-$65 billion of biotech public funds in Boston alone, accessing the equivalent in Europe means travelling to 15-20 cities. Mutual fund groups and only a few big funds are making specialty investments. The EU needs a single unified public market where specialist investors want to come and trade.
Wrapping up, the panel agreed that increased VC funds have led to more opportunities for creating and funding new companies – BUT there is a physical limit to how many boards VCs can manage to sit on.
Europe’s presence and influence in healthcare has continued to grow, and the region leads in many ways. With great science, access to funding and hi-calibre talent, European companies have an incredible opportunity to build tomorrow’s global champions.