16 Aug Midwest life science companies capture 3% of VC investments in Q.2
CHICAGO—Earlier this summer, we looked at venture capital funding in the U.S. during the first quarter of 2004, which reached about $5 billion in investments in small companies.
While promising, this level was lower than the $5.4 billion invested during the fourth quarter of 2003, according to PricewaterhouseCooper’s MoneyTree analysis.
The results for the second quarter of 2004 were a bit of a positive shocker as venture capital investments achieved a two-year high of $5.6 billion invested in 761 companies.
Within this large chunk of change, the life science industry (biotechnology and medical devices) represented 25 percent of the total VC kitty (or a total of $1.4 billion). Investments went into 155 life science companies (or 20 percent of the total).
The Midwest garnered only about $169 million (or 3 percent of the total VC kitty) with investments in 48 companies. The Midwest had an average investment of $3.5 million per company versus $7.4 million in the U.S. As always, this reflected the earlier stage of Midwest companies.
Life science investments in the Midwest totaled $41 million (or 24 percent of the total Midwest VC money) with deals in 10 companies. These investments averaged about $4.1 million per company. In comparison, the highly concentrated Silicon Valley achieved funding of $2.1 billion (or 38 percent of the total) with 230 deals.
The Silicon Valley life science industry captured $528 million with 42 deals (or more than 12 times the amount of money invested in the Midwest) with each investment per company more than doubling the amount in the Midwest. Let’s take a look at how the Midwest fared against other regions for life science VC activity:
The impact of VC activity in the California life science industry is without a doubt far beyond that of the rest of the U.S. If you sum up total California activity in the three intrastate regions, the $688 million represents 49 percent of the total U.S. life science VC investment with 59 out of the 155 deals done (or 38 percent of the actual deals).
In this context, it’s not surprising that the Midwest lags behind other well-known biotech clusters. Even the southeast region is ahead of the Midwest. This region includes not only Florida and Atlanta but also Birmingham, Ala., which is a growing cluster. It also includes the Research Triangle in North Carolina.
The bad news is that Midwest life science funding was better in the first quarter than the second quarter ($54 million in eight companies versus $41 million in 10 companies). Overall VC activity in the Midwest (not just life science activity) also suffered with the second quarter producing only $169 million in investments versus $273 million in the first quarter.
Another measure of where the VC money was spent during the second quarter is the MoneyTree’s analysis by stage of development:
As could be expected, $2.8 billion of the $5.6 billion invested during the second quarter (or 50 percent) was spent in “expansion-stage” deals (also known as mezzanine or late-stage deals).
Another $1.6 billion (or 28 percent) was spent in “late-stage” deals. This means that 78 percent of the total went to well-developed private companies.
About $1.2 billion (or 21 percent) was spent on early stage companies.
Finally, only $83 million was spent on start-up or seed-stage companies throughout the entire U.S. for the quarter (or less than 2 percent).
While the overall VC investing news for the second quarter is good, the “trickle-down” impact has really hit the Midwest, which is lagging in overall VC investment and particularly in the life science arena. See you next week!
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Michael S. Rosen is president and CEO of Barbeau Pharma and a founder and board member of the Illinois Biotechnology Industry Organization (IBIO). He can be reached at rosenmichaels@aol.com. This article has been syndicated on the Wisconsin Technology Network courtesy of ePrairie, a user-driven business and technology news community distributed via the Web, the wireless Web and free daily e-mail newsletters. They can be found at www.eprairie.com.
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