Researchers and journalists have often noted that it takes at least three separate events to indicate a trend. If so, today we can say officially that we are seeing an alarming trend in the area of life sciences investing with the announcement that Scale Venture Partners will cease healthcare investing permanently. This exit follows the announcement last week that long time, established funds Morgenthaler and Advanced Technology Ventures would be effectively spinning out their healthcare investment practices and the announcement just over a month ago that Prospect Ventures would not raise a fourth healthcare fund and return committed capital to limited partners. Here we have three different instances of firms addressing their healthcare investment practices - and presumably their limited partners appetite for the vertical space - in different ways. Any one of these announcements alone can be explained away by individual firm decisions but taken together they validate a major investment shift with a potential long-term impact.
While clearly there remain well-established, pedigree firms that are committed to the life sciences space, the strategic decisions of these well-respected venture firms to move out of healthcare investing reflects significant challenges with the length of the investment horizon and capital requirements to successfully invest in biotechnology and medical device companies. In a Scale VP blog post today , managing director Kate Mitchell specifically states that "...the vagaries of the FDA and the resulting increase in time and capital needed to take these companies through to a real exit doesn't fit our mid-stage fund strategy any longer." Translated: Despite the tremendous innovation within the healthcare space, the process just takes too long.
It has been just over a month since NVCA's MedIC coalition released our Vital Signs Report which found that venture capitalists plan to decrease their investment in the life sciences sector over the next three years. These three instances of venture firms exiting the sector confirm the survey’s results. We now have "a canary in the coal mine" alerting legislators and regulators that FDA reform is more imperative than ever. We need a well resourced FDA that can be efficient, predictable, transparent and safe. And the time to reverse this trend is now.
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