At today’s MassBio (Biotechnology Council) meeting in Cambridge on new VC models for early stage financing, panelists painted a picture of changes in investor appetites and a more varied landscape for capital sources and exit opportunities.

Three fund managers (two independents and Reid Leonard who is Managing Director of Merck Research Venture Fund) noted a trend to smaller raises focusing on reaching more rapid inflection points for marketability and profit.  The days of nine-figure raises are over, as investors have learned that sometimes it is not good business to fund a decade-long quest to build a company and attempt to bring it public in the face of development risks and a recalcitrant IPO market.  Rather, investments with shorter-term goals and smaller cash needs, leading to licensing deals or acquisition by a large drug company, are becoming the norm.

One interesting logical anomaly seemed to capture the attendees: how do you measure success in a biopharma investment?  For a strategic or captive fund such as Merck, you might consider if it feeds the long term pipeline.  For a fund with a finite time line, say ten years, the metric is different, but even there different investors will have different targets.

Do you aim for a multiple of investment, which is how many GPs get compensated?  Do you aim for high IRR, which puts a premium on rapid exit and which assists in raising your next fund?  The fund managers also noted the interaction between funds at different points in their lives: a fund six years into its life and making its last investments has a different appetite and time-line from a fund making its first placements.  These tensions in goals lead some investors to attempt to invest alone and not in a syndicate, and that decision in turn puts further downward pressure on the size of any investment.  Some even expressed doubts that getting technology out of the Universities and into the marketplace is best accomplished by a for-profit model, as opposed to relying on foundations and pre-competitive consortia.

But clearly there are all types of investors out there; while some investors want to “build to sell” others retain the traditional approach of company-founding.  The art is to find the investor which matches the entrepreneurial vision.

And finally, like all else in the world, the biopharma world is getting flat, as the technology is dispersed internationally and funds now look to ventures in Asia, particularly Korea, China and India.  Certainly tightening FDA regulatory oversight, a perception shared by all, helps to drive those deals out of the United States, a trend not at all restricted to the life sciences.