An Update on Private Venture Financing Activity in the Life Sciences Sector: Executive Summary
A Rapidly Changing Market
April 28, 2022
In this report, we update our June 2021 analysis of the private venture market for life sciences companies.
The Private Venture Capital Markets Overall
- In 2022 we have seen the pace of IPOs and follow-on investments slow down dramatically.
- In contrast, the private venture equity market has held up reasonably well through the market turmoil.
- Last year saw 808 fund raise announcements for $25 million or more in the biopharma, diagnostics and life science tools markets.
- The total amount raised last year in this market, $66.8 billion, set an all time record for privates raised in the life sciences sector.
- By our measure activity is down in 2022 by approximately 30% from last year’s blistering pace.
- We expect 2022 to be the second strongest year on record for private venture equity raises in the life sciences.
- A good way to look out at future financing volume is to analyze the flow of money into new venture funds.
- Last year, $29.6 billion flowed into venture funds in the life sciences based on our count from various press releases.
- This was up slightly from $28.9 billion raised the year before.
- So far, in the first four months of 2022 , we have seen $9.5 billion raised in fresh venture fund equity.
- On an annualized basis, we are on the same fundraising pace for funds as in the last two years.
- With three years or record fund inflows, there is a “wall of money” headed into our sector in upcoming years.
Status of Venture Funds
- Crossover investors were major drivers of the boom in private financings in the last two years.
- A crossover investor round is one where some funds that predominantly invest in the public markets (e.g, mutual funds or hedge funds) participate in a pre-IPO financing.
- Historically, crossover investments have been viewed as relatively rare events. In 2011, for example, 9% of venture raises included at least one public fund in the syndicate.
- In contrast, approximately 45% of all dollars raised in 2021 were in a round that included at least one public fund.
- This year, the rate of crossover participation is down substantially. Less than a third of venture dollars raised in Q1 2022 were in rounds that included a crossover investor.
- Raising private money in 2022 is a very different game than before.
- Our analysis of the market indicates that traditional venture funds, tech funds and ultra high net worth individuals are much more important in the market than they were before.
- We don’t have hard data but our own direct participation in the market would indicate that private investment rounds involve valuations that are down 50% to 70% from peak values in 2021. Companies that are not adjusting their valuation are simply not getting rounds done in 2022.
- We review a number of key steps companies should consider when raising capital in the more challenging market of 2022.
Who is Stepping Up in 2022?
SummaryWhile the private markets have held up quite nicely in 2022 it is a very different world than just a year ago. The relative importance of crossover investors is much reduced. Companies seeking to raise money will generally benefit from going broadly into the venture capital community, the high net worth community and non-traditional investors. Crossover investors should still be contacted, of course, but the key to successful fundraising this year is to take a great message with a potentially powerful impact for patients to a broad group of potentially interested investors.
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