'Darwinian' Cuts in VC Funds and Biotechs...

Great coverage of David Mott's remarks last week to the MAVA breakfast.

Tuesday, September 29, 2009
Dave Mott: Biotechs face tough road
Baltimore Business Journal - by Vandana Sinha Contributor

Biotech entrepreneur Dave Mott suggested that the worst capital markets he has seen for emerging life sciences companies in a quarter-century has perhaps hit bottom.
But even with an upswing, the next generation of successful companies will confront much stronger barriers to nailing capital than did its predecessors, including Mott himself, the former MedImmune CEO said in a talk to local life sciences leaders hosted Tuesday by the Mid-Atlantic Venture Association.
A year after selling Gaithersburg's MedImmune to London-based AstraZeneca PLC, Mott moved back last year to his investment banking roots to become a general partner at New Enterprise Associates, a Chevy Chase venture capital firm that focuses on health care, technology, energy and biotech companies.
“Three years from now, there will be one-third as many venture capital firms as there were three years ago,” Mott said. “And there will be half as much money.”
But he said that sort of Darwinian selection will be a good thing -- a slimmer funding pot filters out the companies with weaker prospects from the beginning, ensuring only the strongest survive. “The industry is alive if not well,” he said. “Any purging that has been happening and is still ongoing in our ranks is going to be good for our industry. ... [Before], we were starting companies that weren’t going to get bought out.”
Indeed, he said venture capitalists must continue to be more selective, a common criticism from early-stage companies that protest that investors don’t give them a second glance. Mott said he foresees that changing, that earlier-stage companies with pathbreaking science offering a broad range of drug possibilities are likely to start receiving the venture checks and undergoing initial public offerings. Later-stage companies, which have long been the sweet spot among investor circles, may have to prove themselves more able to cross the hurdles that can often pop up among that age group -- things like lukewarm drug results, partnership interference or stock dilution.
“I think there’s going to be a surprising shift to the big idea, science-based companies, sort of where we were 20 years ago,” he said.
But he did render a tough review of the local biotech industry, saying it’s only produced a handful of spinouts that would catch a venture capitalist’s eye. “I go above and beyond looking for local companies” to invest in, he said, “but I can’t make bad investments.”
He added that his job is to opt for the best science and management teams, even if he finds them in La Jolla, Calif., San Francisco Bay or Cambridge, Mass., rather than local counties. “Right now,” he said, “I see a much higher concentration of investable opportunities in those three regions than I see here.”