With the venture capital market cooling this year, the cash that is available continues to line up behind some of the more high profile Web-based companies, which could spell disaster for technology development in our once high-flying biotech and medical fields. Medical and biotech companies rely heavily on venture capital funding, but the flow of new capital is not only slowing it is being directed in towards areas that, in the view of investors, are less risky, less encumbered by sticky regulations, and quicker to exit.
Although medical and bio-tech companies have generated some of the most disruptive and profitable technologies for decades, the
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current investment environment has dampened investor enthusiasm for anything that might require long term holding periods, not to mention much higher entry capital. For investors in a hurry, they have little tolerance for technologies or medicines that are likely to get bogged down in regulations and approvals that could extend their holding period out beyond a decade. Although many new products and procedures can start to generate revenues in the European market, the exit timeframes can still stretch to a decade or more.
As capital dries up, so too does the pipeline of new talent needed to contribute the academia-based knowledge that drives innovation in the field. Fewer academics or grad students are willing, or able to step out of the comfort of their university labs into commercial research or development when there is no capital to back their efforts. As a result, research and development and even production has been outsourced or simply handed off to foreign companies that can supply the talent and resources at a much cheaper cost. Sounds eerily similar to what happened when we gave up on trying to make cheaper, safer and more fuel efficient cars. Now we import most of them.
Of all of the technologies that have originated within the U.S., the medical and biotech innovations have always been the envy of the world. The venture capital industry has gone through a period of adjusting to what may turn out to be the “new normal” of capital investment which is increasingly favoring quick exits and “sure things”. And, that doesn’t bode well for technological development or innovation in the serious field of medicine. Let’s hope that, once the venture capital industry regains its footing, it can recapture the vision that has led to the most remarkable discoveries and innovations known to man.
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