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Why Are VC Firms Pouring Money into Biotech?

Biotech companies are making remarkable advances in science and medicine. They have developed treatments for diseases like cancer that have stumped doctors for years. Biotechnology firms have also created better diagnostic tools to detect diseases efficiently. A few biopharmaceutical companies are even working on ways to expand the human lifespan. And the list doesn’t end here; the biotech industry is continually evolving with advances in the industrial, agricultural, and medicinal space. This progress is attracting funding from venture capitalists.

Venture capitalists (or venture capital firms) are investors that provide funding to startups and small businesses. They invest in companies that they believe have long-term growth potential to earn above-average profits. Venture capital, often referred to as VC, usually comes from experienced investors and investments bankers. These investors get equity in the company and can thus influence company decisions. What’s important to note here is that VC firms do not invest in every new company that comes their way. These investors make informed choices and only fund companies that they believe can reap profits.

Biopharmaceutical companies saw 37% more VC funding during the first quarter of 2018. Companies labeled solely as “biotech” gleaned $1.922 billion, nearly half (48%) of total VC biopharma financing. According to PitchBook, 2017 was a record year for VC funding in biotech and genetics. It also reported that VC funding in biotech and genetics has seen sold growth since 2010. PitchBook notes that just 16 biotech companies have raised more than $200 million in venture capital since the start of the decade.

So why are venture capitalists investing grand amounts of money in biotech firms? The answer is simple: The return potential is enormous because biotech companies are developing new products and processes that the market needs. Moreover, these products are unique and highly patentable, which makes these companies even more appealing to investors. On a grander scale, biotechnology is attractive because it is developing innovative treatments for incurable diseases like cancer and diabetes. An example of such procedures is immunotherapy (a replacement for chemotherapy) that works by making the immune system stronger.

VC funding is an important – even essential – source of capital for biotechnology startups and small businesses. Many reputable biotech and biopharmaceutical firms have relied on similar investments to establish themselves in the industry. The fact that venture capital investments are still on an upward trajectory in 2018 is good news for the biotech industry. It shows that investors are still willing to invest in biotech firms, which means more innovative products are likely to be introduced soon.

 

Read more: ‘CBD: The Biotech Boom Investors Haven’t Woken Up To Yet’

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