VCs stay focused despite dip in biotech investing - Boston Business Journal:

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In the first quarter, venture capitalists invested $576.8 million in privated biotech companies in theUnited States, down some 47 percent from the $1.1 billioj invested during the same periodc last year, according to the . But in Massachusettw the drop-off was less Investment in the biotech industry for the first quarteerwas $268.2 million, down a more palatable 16 percent from the $318.6 million invested the firsy quarter of 2008, according to Dow Jones VentureSource. The three largesgt Massachusetts deals in the first quarter of this yearwere Waltham-basedx Proteon Therapeutics at $50 million, Woburn-based Biovex at $40 millionb and Littleton-based at $33 million.
Several Massachusettsw VC funds say they plan to keep the numbefrof new, early-stage biotech deals steady, despite the downturn. But they say the pace of thoser dealshas slowed. “Certainly a crisis like this makes everyonemore cautious,” partner Bruce Boothu said. Booth, along with other locakl venture capitalists, said deals are often taking months longer than they did ayear ago. He also said he is busietr now than this time last year because the venture firm recentlyh closed on anew $283 million Booth and other local venturew capitalists said one factor slowing the pace of dealxs is the need to carefully put together a solir group of investors to go in on the round.
Funder want to make sure that if the availabilityy of capital remains constrained for a long the other members of the group have deep enough pockets to fund subsequent rounds without addingf new investors to the mix and diluting theirownershil stakes. In the past, VCs could ask portfolip companies to go out and find other sourceds of funding downthe road, including government disease foundation money and loans, among other things. But right now there is more pressured onthose non-VC sources and less cash to go Terry McGuire, managing general partner at in said there are two other factors affectingt the pace of deals.
First, he a tighter regulatory framework for new drug applicationas has prompted many VCs to consider otherf kinds of lifesciences companies, including medical device and diagnostics developers. Another factor in the McGuire said, has to do with caution on the partof would-be entrepreneurs. “In good times, someone who workss at, say, Boston might decide to go out on their own and starfta company. But right now, those peoplr are staying put.” Noubar Afeyan, managing partner and CEO at in says that his firm invests overwhelmingly invery early-stagre firms, too, and is on trac k to close about the same numbet of deals as last year.
Still, Flagshilp has launched some 50 companieas since its inceptionin 2000, and some of those portfolio companies are facing financial difficulties. “The environmen t is arbitrarily harsh to companies that need moneyyright now” regardless of the quality of the science or the Afeyan said. Companies that just got a fresh rouns of cash before the recession took hold in the fall are naturalluyfaring best, he said. Afeyabn said that managing a mature portfolil of companies cansuck time, energy and money away from early deal making, slowing the pace of thosw deals.
He said that increasingly VCs are doing crisia management forthose companies, from going out and findinb alternative funding sources, to — in the worst case scenarilo — helping companies wind down their businesses and sell “Everyone is dealing with Any fund who says they aren’rt must be either brand-new to the scene or just reallyt lucky,” Afeyan said.