The money's waiting for good biotech projects: VCs

Both public and private equity is out there for quality biotechnology ventures, say venture capitalists, and new initiatives and funds will only increase that.

Speaking at the BioMelbourne Network's BioBreakfast on Tuesday, Michael Panaccio of Starfish Ventures said a variety of funds offered capital ranging from pre-seed investments to substantial funding.

And more is coming, he said, with the move to establish funds capable of supporting later stage companies under the new Venture Capital Limited Partnerships (VCLP) structure, such as Starfish's Technology Fund, which had its first close earlier this year.

"Today it's really tough, but hopefully in another 18 months, there'll be a lot of doors to knock on," Panaccio said. "We expect a lot of fund managers to enter the market."

Panaccio also noted that as long as companies could attract sufficient cash for their needs, mergers were unlikely. "People prefer to stay on their own as long as they can raise cash," he said.

GBS Venture Partners' Andrew Baker said the biotech industry was finally starting to prove its value, with companies becoming more product focused. As the manager of GBS's Genesis pre-seed fund, which along with Starfish's pre-seed fund is one of four recently set up with the support of the federal government, Baker said concept-only deals were losing their attractiveness to investors, who wanted to see product focused platforms, with a clear road map to products, revenues and profits.

"Our view, in a nutshell, is to start at the end," he said. "We need to know how you're going to make money out of it."

Baker noted that the end game in Australia often resulted in a company licensing its technology out, or being involved in a trade sale, rather than taking products all the way to the market.

According to Peregrine Corporate executive director Jeremy Cooper, companies should be careful to raise sufficient funds to take them past critical milestones. "When you're raising money, and you can raise money, you shouldn't under-raise," he said.

But on the other hand, he said, companies should not be greedy, and they should remember that valuations are market driven.

Peregrine -- a boutique investment banking group with a number of biotechnology investments -- utilises a different model to support companies, preferring fund companies from public sources including IPOs rather than private venture capital.

"What does it mean that biotech companies list too early?" Cooper said. "It's surprising that there have been so few company failures to date."