Too Many Early Stage Companies Competing for Too Little Dollars

14 May

By Dennis Ford, Founder & CEO, Life Science Nation; Creator of RESI Conference Series

Global early stage investment will be manifesting in unique partnerships and alliances as new business models proliferate.  Though nascent, a new paradigm is evolving around sourcing, vetting, developing, operating, testing, prepping for licensing and exiting of technology assets.  There are 100s of Biotech and Pharma incubators sprouting up, not to mention the proliferation of university, regional, state and national incubator programs worldwide, because technologies are reaching a breakthrough threshold to change the state of patient care and how we treat and cure disease. Big Pharma plus hundreds in the U.S. alone are all in the hunt to find solutions that will impact the healthcare market.

The incubator strategies are all over the map, depending on corporate mandates. I have stated, in the past, that finding seed money (under 2mm) for 1000s of companies is a lot different than finding series A and B capital (10-50mm). The simple math dictates that a funding bottleneck is on the horizon. This is not a scientific survey, but an estimate based on our knowledge of the market. Using the LSN Company Platform, the NIH SBIR/STTR database and the list of RESI attendees over the last 8 years, our ballpark estimate is that there are around 10-15K early stage companies in the life science arena, with the following distribution.

LSN called and Googled around, and estimated that there was around $60B in investor capital in 2019 for early stage healthcare companies. Assuming there will be 10,000 fundraising startups, with 75% raising a Series A at a ballpark $10M+ and 25% raising a Series B at a ballpark $30M+, our back of the envelope, very conservative, calculation is that at least $150B in capital is needed, with only $60B available.

The point here is that there will be a very large bottleneck in cash due to a lot of need and not a lot of available dollars.

The game changer here is that ALL these incubators have to prepare their early stage companies for the up and coming bottleneck.  The incubators have to better manage their assets, and train their early stage firms on how to raise money and secure strategic partnerships, while their portfolio companies need to actively achieve milestones and get compelling data. All RESIs have a 1:1 ratio of companies to investors, giving companies a great platform to make themselves noticed. Even still, many investors say they invest in only about .5% of the companies they see each year. These incubators with 1000s of early stage companies need to worry about how to get their companies to rise above the noise in the marketplace, as too many early stage companies compete for too few dollars!

 

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