Financial Lifeline for Biotech Companies in Florida
The federal government funds the startup research of most biotechs. After that, private investors step in with R&D funding.
[Photo: Dan Gaye]
"The basic problem we are seeing universally is the venture capital community is more restrictive in using their funds. The risk tolerance is lower than it used to be."
— Russell Allen, president/CEO, BioFlorida
The recession has forced many venture capitalists and angel investors to be more selective when it comes to making risky biotechnology investments. Many investors in and out of state are shifting their focus from drug development, considered slow and costly, to biomedical and medical device startups.
"On the device side, there is a clear path to commercialization, and it is less costly and risky and it's better understood to investors," says Aaron Solomon, a controller with venture firm Athenian Venture Partners, which has an office in Fort Lauderdale.
In the last three years, venture capital investments in Florida medical device startups have risen from $7.5 million to $26 million in the first three quarters of 2011, says Michael Schmitt at the Sid Martin Biotechnology Incubator.
In total, VC firms invested $78 million in Florida life science companies in 2011, a category that includes drug development as well as medical devices. That is almost triple the $27 million the year before and up 12% from the $69.8 million venture capitalists spent on biotech and medical devices in the state in 2008.
Florida has bucked the national trend of decreased investments in life sciences, but it still remains far behind other states. Of the $5.8 billion invested in life sciences nationally in the first three quarters of 2011, according to the National Venture Capital Association, Florida only received 1%.
Even as the number of biotech companies increases to more than 170 in the state, "We aren't there yet" in attracting venture capital compared to biotech hubs like Boston, says David Day, director of the Office of Technology Licensing for the University of Florida.
[Photo: Jeffrey Camp]
"What I am telling almost all of our startup companies, no matter what technical space they are in, when you put together a company, you don't need to think investment right away; you need to think boot-strapping."
— David Day, director of the Office of Technology Licensing, University of Florida
Biotech entrepreneurs point to a lack of early-stage capital. And venture capitalists say the relative immaturity of Florida's biotech industry means there are few deals to invest in. "The perception in the community tends to be there is a lot of activity on early-stage development companies, but the number of late-stage opportunities is not as great," says Spencer Smith, an associate with New York-based private equity firm Aisling Capital. Investors also say they would like to see more experienced management teams.
A key area of concern remains the so-called "valley of death" between research and product development. Florida offers several programs designed to encourage research and investment in biotech, but the capital isn't substantial.
"What I am telling almost all of our startup companies, no matter what technical space they are in, when you put together a company, you don't need to think investment right away; you need to think boot-strapping," says Day.