Biotech funding trends: Insights from entrepreneurs and investors
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Alexandra Carina Gruber WILEY-VCH Verlag GmbH & Co. KGaA, Weinheim, 2009, hardback, 210pp., $120.00, ISBN 978-3527324354
Alexandra Carina Gruber's Biotech Funding Trends: Insights from Entrepreneurs and Investors was written with the aim of furthering a better understanding between European biotechnology entrepreneurs and their current and potential investors, and hopefully improving the investment climate for European biotechnology companies.
Compared to the United States, the biotechnology industry in Europe experienced a much slower start. In 1981, there were fewer than 100 biotechnology companies outside of the United States, compared to over 400 US biotechnology firms; by 1994, the number of biotechnology companies had grown to 475 in Europe alone but exceeded 1300 in the United States. 1 However, as Gruber notes, by 2006, there were 1621 biotechnology companies in Europe, vs. 1452 in the United States, although only 156 of the European firms were public companies, vs. 336 of the US firms.
The major differences between funding opportunities for biotechnology companies in Europe vs. those in the United States have been threefold: significantly smaller involvement of venture capital firms, fewer public offerings, and proportionately greater infusion of government funds in Europe. The most striking contrast is with respect to venture capital, there being only around 50 such firms in all of Europe, according to Gruber, vs. more than 450 in the United States, just counting the members belonging to the US National Venture Capital Association. 2
The main contribution of Biotech Funding Trends is an analysis of interviews that Gruber conducted with three groups of almost all European interviewees- 14 biotechnology entrepreneurs, 15 venture capitalists, and 15 other investors. The interviews resulted in the completion of questionnaires customized for each of the three groups that were surveyed. In addition, five of the entrepreneurs and sometimes colleagues within their firms were interviewed in depth so as to develop five case studies of companies in different stages of development. The case studies provide a good feel for the challenges in raising capital for biotechnology ventures in Europe (subject to the sampling caveat explained below), and compared to the United States, the relative importance of raising funds from sources other than from venture capital firms.
Gruber concludes from her analysis that the major differences between the US and European venture capital markets are a longer history of venture capital, a greater availability of venture capital, a greater willingness for investors to take risks, and a more professional approach of venture capitalists to their work in the United States. She also notes differences between the US and European entrepreneurial cultures. In contrast to Europe, failure is less likely to be stigmatized in the United States, where it is seen to be key to learning. On the other hand, negotiations between venture capitalists and entrepreneurs appear to be tougher in the United States than in Europe.
The downside of Gruber's study is that the data analysis may be somewhat misleading in terms of it representing an analysis of European biotechnology funding trends. The study is mostly about Austria and Germany. Of the 44 interviewees, sixteen were from Austria and fourteen from Germany. The others were from Switzerland (6), the United Kingdom (3), Italy (2), France (2), and the United States (1). Moreover, all five case studies were about Austrian biotechnology firms. This sampling distribution does not necessarily reflect the entrepreneurial environment in Europe. According to Gruber, Austria and Germany placed only Twelfth and Fifteenth, respectively, compared to other European nations, with respect to private equity and venture capital investment as a percentage share of the 2006 gross demographic product. She further reported that in 2006, the top five European countries with respect to venture capital financings were France, the United Kingdom, Germany, Denmark and Switzerland, in that order; Austria placed ninth. She also presented data showing that in 2006, the top five European countries with respect to size of their biotechnology therapeutic pipelines were the United Kingdom, Germany, Switzerland, Denmark and France, in that order; again Austria placed ninth.
In addition, what could have been of particular value to entrepreneurs might have been the section in the book dealing with financing models. Unfortunately, the explanations of the various models are not rigorous enough; they lack equations and examples to be of much value. Entrepreneurs reading this section, who lack a quantitative business background, will hardly be more informed than they were prior to reading it. Nevertheless, Biotech Funding Trends will be of interest to biotechnology entrepreneurs and their investors, although much of what is addressed in the book will not be new to most people in the field.