The buzz is back. After years in the shadow of the Internet and telecommunications, biotechnology is once again stepping into the venture capital spotlight.
Firms that have traditionally invested in biotech are raising new funds and funneling new money into the sector. Meanwhile, venture capital firms that had ignored the "life sciences space" are moving aggressively to capture new deals.
"If you roll things back to the fourth quarter of 1999, there was so much focus on Internet investing that biotechnology was ignored," said Jim Connolly, a partner in the life sciences practice at PricewaterhouseCoopers, the accounting and consulting firm. "Now we're seeing some funds becoming more focused on biotech than they were in the past. I'm also seeing some venture capitalists whose names I haven't seen before" investing in biotech start-ups.
While total venture capital investments have plunged from the highs of last year, a greater share of the money seems to be going to biotechnology. In the first quarter of last year, US$246 million in private equity was raised for New England biotechnology ventures, according to the MoneyTree survey by PricewaterhouseCoopers and VentureOne Corp. That accounted for 7.1 percent of New England venture deals.
In the same period this year, almost the same amount -- US$234 million -- was raised for biotechnology firms, which include pharmaceutical, medical devices and medical software companies. But with overall deals down to US$1.2 billion from US$3.5 billion, those investments accounted for 19.1 percent of the total.
At the same time, venture capital dollars going into communications and networking deals fell to 9.2 percent of the New England total in the first quarter this year, compared to 11 percent of the total for the corresponding period last year.
One entrant to the arena: Beacon Life Sciences, a Boston venture capital firm started last week with US$4 million from its parent, Beacon Photonics. That firm, a joint venture between Boston University's Photonics Center and a group of investors, was formed to create venture capital firms in specific areas. The new firm will exploit the use of photonics, or light technology, in biotech and medical equipment. Beacon Life Sciences is raising additional funds for investments under its president, Joseph F. Lovett.
Why the intense interest in biotechnology ventures? A big part is the bursting of the Internet bubble. Many investors are jaded with anything remotely related to the Internet. The collapse showed that many investments in Internet and e-commerce companies were nothing more than wishful thinking. And the next big Internet concept has yet to emerge from the rubble.
Telecommunications, the other hot area of the past few years, is going through its own meltdown. There's a growing awareness of overcapacity from which the economy will not quickly dig out.
Time for biotech to take a bow. Galvanizing public attention was this spring's announcement that private and government researchers had completed mapping the entire human genetic code, providing a "book of life" which may explain many of the body's mysteries. Investors have also taken notice.
"A lot of people dropped out of health care investing as the Internet exploded in the last four years," said Mark P. Carthy, a venture partner with Oxford Bioscience Partners, a Boston venture capital firm specializing in biotech. "The completion of the human genome was a lightning rod for people getting back into the area."
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