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Views from a Venture Capitalist Nancy Harrison

Views from a Venture Capitalist Nancy Harrison. Venture Capital Investment in Canadian Companies. Excludes Canadian VC investments in foreign companies Source: Macdonald & Associates. Canadian VCs Support Industry. Venture Capital Investments in Biotech.

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Views from a Venture Capitalist Nancy Harrison

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  1. Views from a Venture CapitalistNancy Harrison

  2. Venture Capital Investment in Canadian Companies Excludes Canadian VC investments in foreign companies Source: Macdonald & Associates

  3. Canadian VCs Support Industry Venture Capital Investments in Biotech

  4. The Markets are Bad – How Bad are They?

  5. Where is the Bottom?! Source: Yorkton Securities

  6. The Bad News • Blair/Clinton comments • September 11th • Enron • Elan • Dov • Pharma downturn • Series of poor data, FDA rejections • ImClone

  7. Are There Public Market Safe Havens?7 Stocks Lose $62B in 6 Months Source: BioCentury June 24,2002

  8. What Constitutes a Tier I Company? March 2000: 41 of 81 companies have products Today: 33 of 36 companies have products Source: BioCentury June 17, 2002

  9. US Money Raised by Biotech Companiesin 2002 YTD Where are the institutional investors?! Source: BioCentury September 9, 2002

  10. Canadian Public Market Financings are Dead Money Raised in Public Canadian Biotechnology Companies Source: Yorkton Securities

  11. Six Top Public BC Biotech’s – 2 year, 5 year

  12. Private Deals Done in BC – not many - • Last half 2001 • Protiva - $14.5m • First half 2002 • Oncogenex - $3.6m • Other deals • follow-ons • Grants - Genome Canada

  13. BC Companies are Still Not on the Radar Screen of Foreign Investors

  14. What are VC’s Focused on?

  15. The New Reality • Internal rounds (Series B-2) closing a year after Series B • Lack of lead investors • Debt financing • Lay-offs and downsizing/prioritizing • Mergers • VC’s supporting their own companies • VC’s having a hard time getting excited about the “old” model - Disillusioned • Numbers don’t work anymore

  16. Round Type Date Amount Raised (MM) Pre-Money Valuation (MM) IRR Multiple 1 Seed Jan-90 $ 0.50 $ 2 101% 32.53 2 1st Jan-91 $ 3.00 $ 10 70% 8.13 3 2nd Jan-92 $ 8.00 $ 32 50% 3.30 4 3rd Jan-94 $ 13.50 $ 100 32% 1.32 5 IPO Jan-95 $ 150 Total Private Capital $ 25 A Generic Early 90’s Model Million From Vinod Khosla (KP)

  17. Round Type Date Amount Raised (MM) Pre-Money Valuation (MM) IRR Multiple 1 Seed Jan-97 $ 5 $ 35 79% 18.37 2 1st Jan-98 $ 10 $ 100 65% 7.35 3 2nd Jan-99 $ 25 $ 200 59% 4.04 4 3rd Jan-00 $ 60 $ 600 52% 1.52 5 IPO Jan-01 $1000 Total Private Capital $100 $200 ? A Generic Late 90’s Model Million

  18. Angiotech Model • Go public on TSE (stepping stone/capital) • Then go to NASDAQ (liquidity) • Luck element - public markets closed

  19. Big Corporate Partnership Model • Sign a big deal and get credit (Inex) • Doesn’t always work that way anymore (StressGen)

  20. Top Quartile VC IRR’s above 30 %

  21. What are VC’s doing to Get Returns? • Focusing on companies with on products, revenues and profits • Avoiding concept deals • Doing fewer deals – more money per deal • Watchful waiting • Investing in NRDO’s e.g. Salmedix

  22. What are VC’s doing to Get Returns? • Investing in Superhero CEO’s • Affinity raised $70m Series B – June 24 • Investing at lower valuations (40%) • Especially for Class of 2000 companies • Letting companies go under – not throwing good money after bad • Investing in relatively cheap publics versus private companies

  23. So What Can Companies Do?

  24. Creative Financing Alternatives • Cut Burn • e.g. Geron • Let go 1/3 of work force to refocus on later stage programs – June 2002 • “In the current financing climate companies that are well managed make tough calls…early.” Alex Barkas, Chairman • Slice and Dice Market • e.g. Angiotech - masters of this • Lean and Mean • Angiotech never more than 50 people

  25. Creative Financing Alternatives • Strategic M&A • e.g. ImmGenics • Don’t wait until out of money • Deals to cut burn, increase chances of success • e.g. Active Pass/Neogenesis • Buy versus Build • e.g. Active Pass • Spinouts • e.g. Inex/Protiva

  26. Summary • The world has changed – forget the past • Lots of money out there • For Right story - at Right Valuation • Time is the enemy: Financing and M&A take a long time – don’t get pushed up against the wall • Remember what drives investors – returns! – build into pitch • Be flexible on model and exit • Founders make money when shares are sold, not on company financings.

  27. www.ventureswest.com

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