Thursday, August 6, 2009

State of NE VC Industry

Once again, Xconomy editor Bob Buderi has provided us with some useful fodder for discussion. Yesterday, he posted a poll seeking reader opinion on the overall state of venture investing (or the lack thereof) in New England (don't bother voting, the results have already been tallied).

I was happy that my answers were mostly correct (readers had an average 29% correct rate), but not overly happy about the story the results told. Bob solicited commentary from Michael Greeley of Flybridge (and chairman of the NEVCA), who provided some valuable insights. The stated objective of the poll was to address the long-running debate about the purported difference between venture investing on the west and east coasts. While the questions addressed the state of NE VC investing, they provided less insight into the east/west debate. I’d like to see the data on the same questions directed to west coast VCs. I know it’s an informal survey, but I must confess that I share the popular opinion that Boston VCs are too risk averse, not willing to bet on CEOs who have had a failure (which is a virtual requirement if you’re looking for money from a west coast VC), don’t like early stage investing, etc. My guess is that for every anecdote about this debate, you could find an equally true countervailing story. Thus, I’d really like to see the data (guess I’ll just never get away from my data-driven scientific training).

At the end of the day, though, one really needs to ask if the traditional venture model is still viable, and could it just be that Boston VCs got that a lot sooner than their west coast colleagues. Personally, I don’t get it, in the case of biotech, anyway. (So lemme get this straight – you want me to invest a boatload of money, wait 5 years, invest another boatload of money, wait 5 years, invest another boatload of money, and then wait another 5 years to find out if the science holds up?) On the other hand, that’s why it’s called “venture” investing and not “fully collateralized” investing. Not every investment is going to pan out, and not every pitch opportunity is recognized (take a look at Bessemer’s “Anti-Portfolio” page). Is it time for a different model in biotech? I really like the innovation taking place at firms like Puretech. They take the approach of trying to grow the companies internally, and were the brains behind the unique industry partnership, Enlight Biosciences. I’m just not sure that the traditional model of making early stage investments in a bunch of companies, some of which you know are going to fail, and hoping that one makes it big, is the best way to commercialize promising new technologies. The battlefield is littered with plenty of corpses of companies that simply ran out of money. Nothing wrong with the team or the technology, they just couldn’t raise another round for one of a variety of reasons. Does that make sense? Wouldn’t it be better if we could find a way to mitigate risk a bit more and have a sustainable investment paradigm? I’ve got some ideas, but that will have to wait for another blog entry…

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