4 ms·

Biotech venture has actually outperformed tech venture in recent years. But the venture firms that have done well are specialist venture funds that only do biot

Biotech venture has actually outperformed tech venture in recent years. But the venture firms that have done well are specialist venture funds that only do biotech. I'm writing some detailed articles on the topic, but check out this chart from Previn on the top performing funds from 2007-2015: https://mobile.twitter.com/zavaindar/status/1159660549615116294 https://mobile.twitter.com/zavaindar/status/1159660549615116... All the $100M+ funds on this list are biotech funds: The column group, flagship, orbimed and foresite Tech VCs have seen these returns and want in, but they have not been major players to date. In 2018 less than 10% of series a rounds in biopharma were led by tech VCs [0] These days biotech startups can get very big very fast on comparable amounts as tech startups. But he structure in returns is such that you need more concentrated portfolios and low loss rates to do well I think the narrative about biotech becoming more like tech is a way for tech investors to try to fit more power law driven portfolio strategy into biotech. Bioengineering advances have been incredibly important the last few years, but it is not really correct to compare the pace of product development and value creation in bioengineering to software engineering. I also think it's a bit of a red herring. Biotech VC has done fine on its own. If anything software VCs should take some tactics from biotech funds [0] https://www.baybridgebio.com/blog/top_vcs_2018.html https://www.baybridgebio.com/blog/top_vcs_2018.html

jwahba 7y ago
I'd be careful reading too much into data on top performing funds. The law of large numbers makes it so that smaller funds are more likey to outperform (and underperform) since they have higher variance. Couple that with the strong correlation that speciality funds are more likely to be smaller and it's not surprising. A more accurate analysis would involve looking at all VCs and seeing if you can apply those rules in advance: What would your IRR be if you invested in all the specialty biotech funds as a basket?
- aaavl2821 7y ago
  The small funds on that list are all tech funds. The larger funds are all biotech. Biotech funds are "specialist" but they aren't really small. Biopharma is a top 5 subsector of VC (by some estimates it is the 2nd biggest sector after software) and the largest sector by far of healthcare VC, with $17B+ invested in 2018. Orbimed manages $10B+ (though some of that is public equity). Flagship manages many billions (latest fund was $800M+). Foresite manages over $2B, last fund was $668M. Many other examples I mentioned i was writing a longer post on the topic, that chart is a snapshot. If you invested in biotech VC as a basket recently it would outperform tech [0]. There's more recent data as well but i dont have the link offhand [0] https://lifescivc.com/2016/11/biotech-venture-capital-mythbusting-redux/ https://lifescivc.com/2016/11/biotech-venture-capital-mythbu...
  - jwahba 7y ago
    I was more referencing the tweet which looked at the performance of a particular vintage of those funds: https://mobile.twitter.com/zavaindar/status/1159660549615116294 https://mobile.twitter.com/zavaindar/status/1159660549615116... none of which reached $1 billion vs the largest funds on the second page https://mobile.twitter.com/zavaindar/status/1159660549615116294/photo/2 https://mobile.twitter.com/zavaindar/status/1159660549615116... I look forward to seeing how the newer larger biotech funds do/seeing more recent data during a time where public tech outperformed rest of public market.
joe_the_user 7y ago
Sure, biology might be profitable investment for those who know it well but I think the important part of the GP is that biology doesn't have the potential to "explode" in the fashion that chips exploded with Moore's law. And the thing is that it's easy to imagine such potential, it's easy to imagine that discoveries will accumulate sufficiently in biology that the field passes from being about discovery to being about engineering, which discoveries can be pumped out easily instead of being hard-won, limited and preliminary. But biology has so much variation and complexity and ad-hocery "all the way down" that nothing is ever as straightforward as you'd want it, nearly everything is done by hand even today and for a reason.
- randcraw 7y ago
  But it's only people who live (and think) in clean room environs like computing that imagine biology is amenable to engineering. It's really not. Unlike every kind of engineering and physical science, biology is wildly more complex and modulated by almost innumerable variables that are interdependent. I work in a large pharma, and one of the comments I hear often is "I'm amazed that any drug actually works as intended". With 90% of validated compounds still failing after introduction into the human body (and the thousands of candidates new molecular entity candidate compounds that failed in vitro before that), the track record of human biology to engineered solutions is extremely poor and likely to remain so indefinitely. Just because new techniques are arising to manipulate the assembly language of the body does not mean they will have any better success in setting the right dials to the right settings among the myriad invisible gotchas of disease that inhabit that black box we call 'me'. Until we can better know what's actually going on inside biology's many black box(es), no amount of engineering, no matter how precise, will reliably (and profitably) improve health outcomes. You can't engineer systems that you don't understand.
  - joe_the_user 7y ago
    But it's only people who live (and think) in clean room environs like computing that imagine biology is amenable to engineering. It's really not. It's some people used to computing, it's some investors with a streak of optimism and it's some amateur pundits. Humans think in metaphors and "a machine" is one metaphor often used for life. It's not that good but the problem is pure vitalism is often the alternative and that's not good either.

jwahba 7y ago

I'd be careful reading too much into data on top performing funds. The law of large numbers makes it so that smaller funds are more likey to outperform (and underperform) since they have higher variance. Couple that with the strong correlation that speciality funds are more likely to be smaller and it's not surprising. A more accurate analysis would involve looking at all VCs and seeing if you can apply those rules in advance: What would your IRR be if you invested in all the specialty biotech funds as a basket?

aaavl2821 7y ago
The small funds on that list are all tech funds. The larger funds are all biotech. Biotech funds are "specialist" but they aren't really small. Biopharma is a top 5 subsector of VC (by some estimates it is the 2nd biggest sector after software) and the largest sector by far of healthcare VC, with $17B+ invested in 2018. Orbimed manages $10B+ (though some of that is public equity). Flagship manages many billions (latest fund was $800M+). Foresite manages over $2B, last fund was $668M. Many other examples I mentioned i was writing a longer post on the topic, that chart is a snapshot. If you invested in biotech VC as a basket recently it would outperform tech [0]. There's more recent data as well but i dont have the link offhand [0] https://lifescivc.com/2016/11/biotech-venture-capital-mythbusting-redux/ https://lifescivc.com/2016/11/biotech-venture-capital-mythbu...
- jwahba 7y ago
  I was more referencing the tweet which looked at the performance of a particular vintage of those funds: https://mobile.twitter.com/zavaindar/status/1159660549615116294 https://mobile.twitter.com/zavaindar/status/1159660549615116... none of which reached $1 billion vs the largest funds on the second page https://mobile.twitter.com/zavaindar/status/1159660549615116294/photo/2 https://mobile.twitter.com/zavaindar/status/1159660549615116... I look forward to seeing how the newer larger biotech funds do/seeing more recent data during a time where public tech outperformed rest of public market.

joe_the_user 7y ago

Sure, biology might be profitable investment for those who know it well but I think the important part of the GP is that biology doesn't have the potential to "explode" in the fashion that chips exploded with Moore's law. And the thing is that it's easy to imagine such potential, it's easy to imagine that discoveries will accumulate sufficiently in biology that the field passes from being about discovery to being about engineering, which discoveries can be pumped out easily instead of being hard-won, limited and preliminary. But biology has so much variation and complexity and ad-hocery "all the way down" that nothing is ever as straightforward as you'd want it, nearly everything is done by hand even today and for a reason.

randcraw 7y ago
But it's only people who live (and think) in clean room environs like computing that imagine biology is amenable to engineering. It's really not. Unlike every kind of engineering and physical science, biology is wildly more complex and modulated by almost innumerable variables that are interdependent. I work in a large pharma, and one of the comments I hear often is "I'm amazed that any drug actually works as intended". With 90% of validated compounds still failing after introduction into the human body (and the thousands of candidates new molecular entity candidate compounds that failed in vitro before that), the track record of human biology to engineered solutions is extremely poor and likely to remain so indefinitely. Just because new techniques are arising to manipulate the assembly language of the body does not mean they will have any better success in setting the right dials to the right settings among the myriad invisible gotchas of disease that inhabit that black box we call 'me'. Until we can better know what's actually going on inside biology's many black box(es), no amount of engineering, no matter how precise, will reliably (and profitably) improve health outcomes. You can't engineer systems that you don't understand.
- joe_the_user 7y ago
  But it's only people who live (and think) in clean room environs like computing that imagine biology is amenable to engineering. It's really not. It's some people used to computing, it's some investors with a streak of optimism and it's some amateur pundits. Humans think in metaphors and "a machine" is one metaphor often used for life. It's not that good but the problem is pure vitalism is often the alternative and that's not good either.