VC Career Advice

I've been talking recently to a number of people interested in pursuing a career in VC. It's really difficult to offer any good advice as to the best way to become a VC because there are a number of different paths to choose from. VCs can come from investment banking, management consulting, start-ups, big corporations, etc. There is no "typical" career track to follow to break into VC.

With a very limited number of openings each year and many qualified applicants, VC firms can be very picky in their hiring; most VCs working in life sciences have either an M.D. or Ph.D., and several have an M.B.A. in addition to the other degrees. As the VC industry contracts (see figure below, source: WSJ), there will be even fewer positions available.


While there's no guarantee of landing a job, I believe the Kauffman Fellows Program is a good way to get your foot in the door. Search firms, such as Glocap, Pinnacle Group, and Polachi, might also be helpful.

I'd like clarify a misconception that some people might have about being a VC. I absolutely love my job, and I'm very fortunate to work with very smart, stimulating people. It's a lot of fun meeting entrepreneurs with really interesting ideas about solving the world's problems. There is no such thing as a perfect job though, as every job has its pros and cons, and being a VC is no different. Let me know if there are any jobs out there that will pay you to sleep with models (j/k). While it may appear that being a VC can be somewhat glamorous and lucrative, it is definitely not always the case; especially if you're not a partner. I rent a one-bedroom apartment and lease my car. I have about $35K remaining of almost $100K in student loans to pay off. I am by no means poor, but my life is not very extravagant either. I believe most VCs who aren't partners live relatively modest lifestyles.

Even if you overcome the odds and land a position, the probability of becoming a partner is relatively low. With fewer firms remaining, there are even fewer partner positions available. Ultimately, "you eat what you kill" in this business, and if my investment decisions result in poor returns, I won't survive in this business for too long.

Check out John Gannon's VC Career Resource page for more information.

BioPharma Acquisition Spree Continues

Bristol-Myers Squibb recently announced its acquisition of Medarex for $2.1 billion (at $16 per share, about a 90% premium over its previous close). As I mentioned over three years ago, analysts had been speculating about Medarex's acquisition after Amgen acquired Abgenix in 2005. Why did Bristol-Myers finally pull the trigger after all this time? I suspect that after Bristol-Myers was outbid by Lilly for control of ImClone, BMS wanted to reinforce its biologics franchise. That and the fact that Medarex shares have taken a beating since August of last year. Bristol-Myers and others have been signaling that they would take advantage of low valuations to make acquisitions. I believe that this buying spree will continue for the near-term as the fundamentals haven't changed yet: relatively low valuations and cash-rich buyers facing generic competition and limited R&D productivity.

Dow Jones VentureSource 2Q09 Results

Dow Jones VentureSource released results for U.S. VC Financing for Q2. VC financing during Q2 rebounded 32% from a dismal Q1 but was down 37% compared to the same quarter last year. For the first time, more capital flowed into health care than IT companies. While biopharmaceutical and medical device investments decreased, the health care services sector had a great quarter, improving nearly three-fold.

“Health care investment was the only sector to spring back to levels seen before the economic meltdown that began in the third quarter of 2008."

The following figure summarizes the proportion of dollars invested into the different industries (click on figure for larger view).

This rotation to health care is pretty amazing considering the capital requirements and risks associated with health care startups relative to IT companies. I believe that investors recognize that there are still healthy exit opportunities in health care compared to other industries. In my opinion, there is still a lot of downward pressure on the VC industry. Hopefully, health care can remain a silver lining moving forward.

Signs of Life in Life Sciences VC

After a rough 1st quarter, the recently released OnBioVC 2Q09 Trends Analysis shows that life sciences VC funding increased year-over-year by 31%, totaling about $1.71B for 2Q09 vs. $1.18B for 2Q08. Funding for the quarter increased about 20% relative to Q1, which was approximately $1.43B. Not surprisingly, most of the money (almost $1B) went to later-stage companies (Series C and beyond).

It will be interesting to see what the NVCA/VentureSource Q2 results will be. I'm wondering if VC firms are rotating into life sciences deals or whether other industries will see a healthy increase in VC funding. I can see why VCs are interested in life sciences investments at the moment given the exit opportunities. I am a bit surprised, though, by the magnitude of the increase in life sciences funding compared to last year. Maybe LPs are loosening up faster than I expected, which is great for start-ups seeking capital.

A Case for Preclinical Biopharma Companies

Despite the talk about how later-stage companies are being more favored, Jeff Himawan from Essex Woodlands Health Ventures made a very good case for preclinical stage biopharmaceutical investments at the recent LARTA Life Sciences Venture Forum. Concert Pharmaceuticals recently announced a partnership with GSK for three preclinical programs potentially worth over $1 billion in milestone and option payments. The lead compound, CTP-518, is a novel HIV protease inhibitor expected to enter Phase I trials the second half of 2009. Chroma Therapeutics also entered into a partnership with GSK for four discovery and development programs to identify small molecule therapeutics, including a macrophage-targeted HDAC inhibitor program for inflammatory disorders such as rheumatoid arthritis. The partnership is also potentially worth more than $1 billion. Last year, Daiichi Sankyo acquired U3 Pharma AG for $235 million. U3's lead program, which is partnered with Amgen, is a fully-human HER-3 monoclonal antibody that will start clinical trials by the end of the year. Obviously, investing in preclinical programs are risky, but with most investors focusing on later-stage opportunities, there might be some good bargains at the early-stage.

Global Trends in VC 2009

The Deloitte 2009 Global Venture Capital Survey results suggest that, not surprisingly, the majority of firms plan to maintain or decrease their level of investment in the future. The pie chart below shows the proportion of U.S. firms that intend to change their level of investments in terms of capital and number of companies. There's also a shift towards later-stage companies (figure not shown).
There is a silver lining though. The medical device group appears to be favored by global VC firms compared to other sectors.The following pie charts show the proportion of U.S. venture firms' anticipated change in the level of investment for biopharmaceutical and medical device companies.

Right-sizing VC

Paul Kedrowsky of the Kauffman Foundation recently published a not-so flattering article about venture capital, Right-Sizing the U.S. Venture Capital Industry. He outlines why the VC industry will likely shrink over the next few years. His argument is simple: VCs must offer investors competitive returns for the industry to be viable. Unfortunately, VC performance has been relatively poor since the dot-com bubble burst. The amount of capital committed needs to return to levels when the VC industry generated competitive returns. So how much should the industry contract by?

"...we should expect it to fall by half to a $12 billion per year investing pace from it current $25 billion (and higher) rate."

The thesis is similar to Fred Wilson's Math Problem. I also believe that the VC industry will contract simply because many LPs will not have as much capital to invest. It will be interesting to see how quickly this right-sizing plays out. Unfortunately for entrepreneurs, obtaining capital from VCs will get more difficult as a result of right-sizing. Hopefully, other avenues (e.g. government grants, angel funds, friends and family, etc.) will be able to fill in some of the gap.