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A handful of life science venture capital (VC) firms have been successful over the years. Each has done so with its own unique style. It is claimed that specifically for biotech, there are nine characteristics with varying degrees of importance that need to be analyzed for understanding the complicated investment evaluation process (Boehm [2003]). A more rigorous analysis of this framework was conducted by interviews with a sampling of 13 top VCs who were selected by the authors for their reputation, number of biotech portfolio companies, recent investing activity, and geographic diversity.
While Boehm [2003] outlined nine criteria, only eight metrics were surveyed: Concept, Science, Management, Market, Competition, Intellectual Property, Valuation, and Geography. The Type of Business metric was not included, as the scope of this investigation was limited to biotech companies. Since each investment opportunity is different, an attempt was made to evaluate how each VC generally looks at these categories with respect to each other and then specifically with a subset of investments made by each firm. Exhibit 1 outlines the eight metrics studied.
METHODOLOGY
The first few weeks of the study were spent refining the objectives and scope. Once a framework was decided, venture capital firms in the United States were chosen based on reputation, investment stage, and focus area. To maintain consistency in the study, only firms that did early-stage deals in the life sciences area were selected as participants for the study. A complete list of the venture capital firms contacted is provided as Exhibit 2. After finalizing the list of venture capitalists, 20 biotech and specialty pharmaceutical companies were chosen (Exhibit 3). To ensure uniformity, deals that had received seed or Round "A" funding in the biotech/life sciences space were chosen. Moreover, to prevent hindsight bias, deals funded in the last 18 months were selected. Finally, to understand the difference between rationales for investing, companies that had been funded by at least two of the venture capital firms in the list were selected.
Keeping in mind that each investment opportunity is distinct, each VC was asked his or her overall thoughts on the following key investment criterion: Concept, Science, Management, Market, Competition, Intellectual Property, Valuation, and Geography. The exact questions varied, but the authors had detailed discussions around...