Venture capital support for early stage businesses in Massachusetts, at least in the life sciences and in internet software, has not been this robust for many years. Such was the consensus of a panel of three Boston-based early stage venture capital firms (Third Rock, Sigma Prime and Point Judith) at this morning’s breakfast meeting of ACG in Boston.
The panel noted that the venture capital community has shrunk nationally and in Boston is now reasonably stable; they also acknowledged the debt which venture capital owes to angel investors for making high risk investments which sometimes bubble up into venture-financeable enterprises. Other significant points:
There are key elements that venture capital looks for in making an investment: an entrepreneur with deep domain experience and vision, a concept that has the potential of creating a truly large enterprise, a special technological edge, and a product or service which fills a fundamental need.
The two VCs investing in life sciences had quite different appetites in terms of the size of an A round; one was looking for a range $2,000,000 to $6,000,000, another would go much higher (against milestones) in order to nurture the company to a point where professional management for ongoing operations could be brought in.
When do you sell? “Companies are bought, not sold.” The venture capitalist knows when to sell when buyers are circling the company, and your professional management is listening to them.
The IPO market is open for life sciences, and for larger internet/software based companies. Will the IPO market open for the smaller SAAS companies? The panel agreed that the prospect was dim; given needs for liquidity and the size of investment typically made by institutional investors, it doesn’t make sense to bring a software company public unless its market cap is in the range of $500,000,000 or more. This size target in turn is only driven by sales of $50,000,000 to $100,000,000. If you have a software company which has sales in the $30,000,000 to $50,000,000 range, it is too difficult to justify the requisite market cap so as to support an IPO.