Pitchbook is out with figures for private equity exits in 2013. It is well worth the effort to download a copy of the report from Pitchbook.
Highlights include–it’s taking longer to get to a private equity exit, but Q4 of 2013 was “stellar” with $59b on 192 exits. The ratio of the number of private equity investments to the number of exits is 2.3, well below the pre-2008 meltdown figures. Pitchbook points out that the lower ratio means there are more investors looking to exit companies and fewer looking to place new money, relatively speaking.
Acquisition of startups by companies has slowed and IPOs have picked up. Hold times are pushing five years or more for all forms of exit. The median exit size for acquisitions, the typical target for university startups, is north of $75m. Good money if you can get it, but then your company has to be playing with valuations in that space, too. Getting $100K from a state seed program and a couple of SBIRs likely won’t work that sort of magic. For all the emphasis university licensing programs put on biotech, only about 10% of private equity exits by acquisition are healthcare related. If a university wanted to see private equity exit action, it would (say, seven years ago, on average) have been putting resources into startups focused on business products and consumer products, or even energy and information tech–any of these with significantly more activity than biotech now.
In terms of IPOs, over 25 had valuations of $1b or more, with a median of around $250m. But IPOs were the least common form of exit in healthcare, and healthcare IPOs were nearly dead last among the seven sectors covered by Pitchbook.
Over at MoneyTree, the PricewaterhouseCoopers site that tracks venture capital investments, Software continues to lead as the most active area, with internet startups making a strong showing. Software and internet combined accounted for $18b in VC investments in 2013, while biotech was at $4.5b in investment. In terms of development stage, less than $1b went to seed investment, about $10b each to early stage and expansion, and about $9b to later stage companies. Clearly, the action is in companies past the seed round.
The question that comes to mind as I review these figures is–what portion of all this investment and exit activity involves companies in which university licensing offices have an equity and/or licensing interest? That is, are we talking 5% of the total action, or 1%, or 0.5%? A second question that comes to mind–how much research funding is moving from these venture-backed startups to universities? Are these startups funding significant university research? Again, are we talking 5% of all industry supported research at universities, or 1% or 0.5%? Or is most startup-provided research money for university work coming via the STTR and SBIR programs? These are basic questions that set a context for both on-going investment and for exits. If university administrators and state economic development officers wish to promote the importance of university research and discovery as part of their programs, then they should have answers to these questions at their fingertips, if not their tonguetips.
For instance, according to MoneyTree, of the $500m invested in Q4 2013 in the Pacific Northwest, there were 5 biotech deals totaling about $175m (and 18 software investment deals for $151m). Of the biotech deals, Juno Therapeutics received $120m and is a partnership between Fred Hutchinson Cancer Research Center, Memorial Sloan-Kettering Cancer Center, and Seattle Children’s Research Foundation. How are these institutions involved in this “clinical-stage company”? There are plenty of University of Washington affiliated faculty sprinkled on Juno’s website (which is to be expected since UW faculty populate Fred Hutch and Seattle Children’s). But are any university discoveries being developed? The same appears to be the case for the other companies receiving venture investments–Immune Design ($48), Sound Pharmaceuticals ($6), Blaze Bioscience ($1m), and Light Sciences Oncology ($350K). Some university folks around, but not university inventions, perhaps some university research, gobs of university expertise.
Are university-based startups are figuring significantly in either venture investing or in exits? If not, is it because universities are doing research in the wrong areas? or securing patent positions in the wrong areas? or presenting potential deal flow with the wrong attributes? If the future is so uncertain, then can universities make it up by managing a diverse portfolio–meaning spending money on patents everywhere? Or do they stick with biotech and hope that history is cyclical and that 1980 will come around again if they wait long enough.
Without a clear dashboard of transactions–in context, not simply, say, a happy map–it is difficult to evaluate just what sort of activity is going on around the results of university research–that is, the results for which university administrations seek ownership with an eye on patents, licenses, equity, and lots and lots of money. There are other results–expertise, insight, collaborations, published data, knowledge of lab setups, negative results, trained post-docs ready to leave the university for something with an upside, whatever the risks–but these results are not owned like patents are. I wonder what would happen if university administrators spent less energy trying to own anything at all arising in the research the university hosts.
There appears to be plenty of money around for universities to spend lobbying government policy-makers to support more university research. Presently a good part of that pitch is that the results of research spark innovation and economic development. What is not sorted out, however, is what results the university administrators mean. It is essential that university administrators start publishing data to go with their pitch that provides a full context by which to evaluate what is happening with university startups in the broader context of investments and exits.
The future is uncertain, and that makes it, well, so liberating. I think I’ll get myself a beer.