Rockies Venture Club: Three Myths of Life Science Angel Investing
By: Colorado BioScience Association Date: 07/10/2023
By Rockies Venture Club | RVC Weekly Newsletter July 3
The Three Fallacies of Life Science Investing
I’m always interested to see how angels and angel groups present themselves to the public with regard to what kinds of companies they would like to review. One group proudly claimed that “we do anything except for life science.” Upon further inquiry, it turned out that this group had succumbed to the fallacies of life science investing and they were missing out on big opportunities.
An analysis of venture capital returns by vertical done by PitchBook concluded that “life sciences deals outperform other sectors on an adjusted basis, despite a risky reputation.”
At RVC, Life Sciences are one of our three focus areas (Life Science, CleanTech, and Technology/CPG.) Life Sciences make up about a third of our portfolio and have had more returns by sector for RVC investors than other verticals. Surprisingly, this category also has the most “early exits” for us, with returns in just 1-3 years.
Fallacy #1: It takes 10-20 years to exit and tens or hundreds of millions to get there.
Fact: most life science companies exit well before commercialization. One company we invested in bravely showed a row of zeros across their five year proforma for revenue. They exited quickly with a 150% IRR return to investors. We analyze what I call “off ramps” for life science companies, where they will exit before commercialization. In some cases it would be after IND, or Phase 1 trials. Others might go to Phase 2 trials or later. Exiting early on after proving the concept in animal trials is also a quick path to returns.
Fallacy #2: FDA regulation is opaque and takes forever
Fact: For medical devices, especially those with predicates, the path can be relatively clear and does not take long. Expenses can be measured in tens or hundreds of thousands of dollars to get there in some cases and full approval can take place in less than a year. One RVC medical device investment was focused solely on getting FDA approval and the company was sold quickly after that — one of our fastest exits. There can be capricious experiences with the FDA but the worst one I can remember took maybe two years to resolve.
Fallacy #3: Life Sciences are too complicated, and you should only invest in what you know.
Fact: Yes, the science of life science is deep and it would take years to fully understand each deal. This is why investing with groups like Rockies Venture Club is such a good idea. By tapping into “the wisdom of crowds” and engaging industry experts, as a group we do possess the expertise needed to assess life science deals. I personally love picking apart deals with people who truly understand the challenges and opportunities that companies face. Continuously learning is one of the best parts of being an angel investor – and so is making great returns, which is why we like life science investing so much!
See for yourself and register for the Colorado Bioscience Association and Rockies Venture Club Life Sciences Night on July 20th!