Life science venture capital firms raised record money last year, but some later stage companies are having difficulty raising equity because the valuations from their last round - priced in the waning days of the genomics bubble - got way ahead of their fundamentals.
Valuations are coming down - in some cases, deals are getting shopped at less than 50% of their prior valuation. But investors continue to play a waiting game, as they - in Wall Street parlance - don't want to catch a falling knife.
Thus the private equity world is faced with a predicament. On one side, the coffers have never been more stuffed; by BioCentury's estimates, nearly $10 billion was raised last year that should find its way into life science venture companies. On the other side, there are companies desperately in need of money, whose managements and boards are unwilling to accept it because of valuation issues.
This conundrum could be resolved if stocks continue to go up, because venture valuations largely are tied to what's happening in the stock market. Indeed, the current rally continues to look less and less like just another bear market rally. In the fourth quarter alone, the BioCentury 100 was up 24% (see "A Nice Finish," A2).And some buysiders are betting that the industry fundamentals for 2002 could be strong enough to keep the upswing going (see "Cherrypicking" BioCentury, Jan. 7).