VC playing field tilts to established companies, funds – MedCity News

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Venture investors moved record sums into biotech and pharma firms last year, according to a quarterly look at venture investing in the U.S.

The gains came despite the Covid-19 pandemic, which squelched investing early last year, especially in early-stage companies, according to the PitchBook NVCA Venture Monitor for the fourth quarter and full year of 2020. The report is produced by PitchBook and the National Venture Capital Association, with support from Silicon Valley Bank and Velocity Global.

Overall, biotech and pharma firms raked in $27.8 billion last year in 998 deals, up from $17.3 billion in 934 deals in 2019, according to the monitor. The average deal size rose to $29.8 million in 2020, up from $20.8 million. Average valuations, meanwhile, hit an all-time high of $134.2 million, up from $97.3 million.

“The bull investment run is likely to continue in 2021,” the monitor’s authors wrote in an executive summary. “The tailwinds for biotech & pharma due to renewed interest in vaccines and antivirals may last for years.”

Overall, the pandemic made tough going for the newest companies, as investors seemed to favor more-established firms, according to the monitor’s executive summary. “Female founders and entrepreneurs in the middle of the country, who have traditionally been underrepresented in VC funding, also felt the impact of investors largely allocating capital to existing portfolio companies or known relationships.”

The trend was less-pronounced in pharma and biotech. The sector accounted for a majority of the 25 largest early-stage deals in the second, third and fourth quarters of 2020. The sector’s quarterly average over the last three years is just under half of the top 25 according to the monitor.

Significant fourth-quarter early-stage deals included a $725 million investment round for San Diego-based manufacturing technology firm Resilience, led by Arch Venture Partners and 8VC. 

The industry was no stranger to another trend in the venture capital world: the explosion of special purpose acquisition companies as an exit strategy for going public. Oncology startup Nuvation Bio announced last year it is going public through a reverse merger with Panacea Acquisition, a SPAC sponsored by EcoR1 Capital.

There were 250 SPAC-related IPOs last year, up from 53 in 2019 and 36 in 2018. But there were slightly fewer exits overall: 1,101 in 2020, compared to 1,121 in 2019.  

Despite high-flying investing levels, venture capital firms aren’t about to run out of funds. They raised a record $73.6 billion in 2020, beating the previous record of $68.1 billion set in 2018.

However, established firms were more successful than newer firms, the monitor said. The number of first-time funds, for example, hit a seven-year low of 50. They raised $3.9 billion, down from the $6 billion raised by first-time funds in 2019 and $10.8 billion in 2018.

“While some segments of the ecosystem felt the brunt of the headwinds from the pandemic and economic uncertainty more than others, VC investors are starting the year in a strong position with ample dry powder to put to work,” Bobby Franklin, president and CEO of NVCA, said in a statement.

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