Venture hots up

How VC investment in biotech could ramp up as LPs redeploy returns

Private biotechs have raised $3.1 billion since the start of the year, double the $1.5 billion raised in the same period last year. At least one investor contacted by BioCentury expects the pace to continue in part because LPs are redeploying returns from prior healthcare investments to new biotech funds.

That would mark a dramatic change from two or three years ago, when biotech VCs were struggling to lure LPs.

Last week alone, private biotechs raised $311 million in venture rounds, with $1.2 billion raised so far in April. Over April 1-26 last year, private biotechs raised $537.3 million (see "Venture Tally").

"We're starting to see the venture fundraising cycle starting to thaw," said Valence Fund's Eric Roberts, who expects the amount of money going to private biotechs to continue to increase as more firms raise new funds.

The biotech IPO window has allowed venture firms to generate returns on life science investments and return cash to LPs - returns that are "getting better because of the stock market," said Roberts.

Though the sector entered 2Q14 facing its second-largest correction since the beginning of the bull run in 2009, the BioCentury 100 index has tacked on 62.4% and the NASDAQ Biotechnology index (NBI) 63.6% since the start of 2013.

"The optimistic sentiment in the public markets over the past 12-18 months is bringing some buoyancy into the private markets," noted Atlas Venture's Bruce Booth.

"Traditional LPs are going to be investing in new funds in the coming quarters, and there will be money to invest in private biotech companies," said Roberts. "You have a better fundraising environment for new healthcare funds than you've had since before the 2008 financial crisis."

Atlas closed its ninth fund last year with $265 million. Since the start of the year, Arch Venture Partners, The Column Group, Venrock, RiverVest, Ysios and Clarus have disclosed they are raising new funds.

Roberts declined to say whether Valence is raising another fund, but predicted VCs with a fresh influx of cash will invest across the board.

"Some of the areas that have been historically difficult for life science investors

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