With uncertainty rocking the venture capital market in the biotech and pharma industry, analysts from JLL give their thoughts on what the market looks like and where it may be heading.
It’s no secret that this year has been rough for smaller biotech companies searching for funds from venture capitalists. According to JLL Research, deals valued at less than $150 million have fallen by over 39% since 2022, while higher-value transactions have only fallen by 7.1% year over year.
Venture capital funding data in the life sciences/JLL
BioSpace sat down with JLL Research Director Mark Bruso, who explained that this trend is likely due to those more significant deals involving companies that are more established, are already well-funded, and have had some success. Bruso also discussed what could be in store for life science VCs next year.
BSp: What motivated JLL to look at the data this way?
MB: There’s no denying that the companies in the biotech space are facing considerable funding constraints. What we wanted to show is that it’s a bit of a tale of two cities right now. If you are really early stage, if you are not one of the top, call it five to ten percent of companies in terms of your science and the data you’ve produced . . . it is tough right now to raise your next round of funding. But if you are the cream of the crop, top of the heap in the biotech space, it’s not as if the sky is falling. It’s pretty much in line with 2020 levels in terms of these mega-rounds that are getting doled out.
BSp: Were you surprised by this trend?
MB: In a way, yes. If you were to ask me nine months ago, or twelve months ago, in 2023 would you expect your large mega-rounds to be resilient and more resilient than everything else? I’d say that seems kind of counterintuitive; funding is down, and folks don’t want to write big checks or checks in general right now. . . .Now that I’ve seen the data, it makes a lot of sense from the venture capitalist perspective right now in this environment.
BSp: Why do you think this trend exists?
MB: VCs in general, I think a lot of them are sitting on top of a lot of dry powder that they eventually want to deploy into the space because they’re long-term believers of the biotech space. . . . And so if you have really good data, you have really great underlying science, you’ve got a really great leadership team—I think all the venture capital has been focused on those companies so far because they feel comfortable with those companies, and they don’t feel like they’re taking on as much of a risk as they would if they are basically seed stage or a Series A funding company with some really new science that really has been unproven to this point.
BSp: Will this trend continue into 2024?
MB: I think the first half of 2024 will look like 2023. We’re starting to see some of the freezing of activity thaw a bit in the last couple of months. I think we’ve seen substantial upticks in activity and demand in the life sciences space across our markets in the last four months, measured steady growth month after month as a reflection of more funding being released into the market.
If you look at the funds raised in the last three years, just a record amount of dry powder is ready to be deployed in the space by venture firms focused on life sciences. And so, I think we’re going to see a slow—not glacial, but slow—move back to normal in 2024. But I think the first half of 2024 will look like what we’ve experienced right now, which is thirty to thirty-five percent less venture deals across the board getting signed.
Editor’s note: This interview has been edited for brevity.
Tyler Patchen is a staff writer at BioSpace. You can reach him at tyler.patchen@biospace.com. Follow him on LinkedIn.
