Surprising news in this SEC filing today: Waltham's Polaris Venture Partners, one of the more active local firms investing in tech, cleantech, and life sciences, is planning to raise $400 million for its next fund. That's less than half the value of the $1 billion fund Polaris raised in 2006.
That'll obviously lead to a change in the pace (and/or size) of new investments that Polaris makes, but I'm not expecting there to be any radical reductions in Polaris' line-up of investors, or its commitment to its Dogpatch Labs incubator space in Boston, San Francisco, or New York. So far, Polaris has raised $233 million of the new fund, its sixth. (I spoke to Polaris co-founder Terry McGuire this afternoon, who said he couldn't comment on the fundraising process or the impact of a smaller fund on the firm.)
Here's some audio from last Friday of McGuire being interviewed by fellow venture capitalist Ansbert Gadicke of MPM Capital; McGuire was following Scott LaGanga of PhRMA, the pharmaceutical industry trade group, who was talking about what happens in the wake of the healthcare reform legislation. (The audio comes from the Convergence Forum, an annual life sciences event that I'm involved with as an advisor.)
Some of McGuire's comments, and one slide shown during the session:
"Limited partners [who put money into VC funds] are a little bit weary of life sciences venture capital, and somewhat skeptical...There is probably going to be even less capital that's available for early-stage life sciences investing."
"It's going to be a challenging decade. Will there be capital around for life sciences investing? Yes there will, but there will be fewer groups doing it." McGuire, until recently the chairman of the National Venture Capital Association, predicted a sharp decline in membership of that group. He also said he thought the expectation that venture capitalists would raise $18 billion in new funds this year (see chart below, from the law firm WilmerHale) was overly bullish.
McGuire said, "Historically the biotech world has depended on the public markets to be there," and if there is no appetite for life sciences IPOs, that will result in a lack of capital to keep moving new drugs toward FDA approval. Gadicke, who at MPM is also out in the market raising a new fund, estimated that there are about 20 to 25 "interesting" (read: non-fire-sale) M&A transactions each year in life sciences, and joked that MPM and Polaris both hope those transactions will only involve their portfolio companies.
McGuire also talked about "capital efficient" start-ups, which is a concept you hear about more often in tech than biotech, where companies routinely require $50 million or more in funding to cultivate new drugs to the point where they're interesting to bigger partners in the pharma industry.
Despite the depressing predictions, McGuire several times said he is an optimist by nature. He also said, "Darwin was an optimist — good things come out of severe moments."
About Scott Kirsner
Scott Kirsner was part of the team that launched Boston.com in 1995, and has been writing a column for the Globe since 2000. His work has also appeared in Wired, Fast Company, The New York Times, BusinessWeek, Newsweek, and Variety. Scott is also the author of the books "Fans, Friends & Followers" and "Inventing the Movies," was the editor of "The Convergence Guide: Life Sciences in New England," and was a contributor to "The Good City: Writers Explore 21st Century Boston." Scott also helps organize several local events on entrepreneurship, including the Nantucket Conference and Future Forward. Here's some background on how Scott decides what to cover, and how to pitch him a story idea.
Subscribe via e-mail
More from Scott
December 9: Web Innovators Group
Demos of new mobile apps and web ventures at the Royal Sonesta Hotel in Cambridge. Free admission; cash bar.
December 10: Fintech Demo Day
Short demos from startups in the financial technology realm.
December 11: Unpitch
Entrepreneurs and investors sit down for lunch, advice, and feedback. Entrepreneurs must apply to participate.