Biotech Startups: Nothing Ventured, Nothing Gained

This post first appeared on Minyanville.


It’s a rotten time to be raising money. And for small biotechnology companies, most of which have little or no revenue and are dependent on investor capital to stay afloat, times are tough indeed.

According to the Wall Street Journal, 120 of the 360 publicly traded biotech firms have less than 6 months of cash on hand. And while this isn’t an entirely foreign position for industry upstarts to be in, the challenging fundraising environment means many of these companies could go under.

The business of developing experimental drugs, procedures and devices has always been one of high risk and high reward. Investors, often venture capitalists, are willing to lose their entire outlay many times over for the chance of hitting it big.

During their initial years, biotech startups undertake research, complete lengthy drug trials, and navigate the labyrinthine bureaucracy that is the Federal and Drug Administration, with investors pouring in more cash all the while.

The lucky few either get swallowed up by one of the industry heavy hitters or go public.

As noted in the Journal, the biotech business as a whole had its first profitable year in 2008. As fledgling companies blow through cash, giants like Genentech (DNA), Amgen (AMGN) and Gilead Sciences (GILD) rake in mountains of profits.

The fundraising troubles these startups face are emblematic of the broader difficulties for small businesses. Despite promises of help from the Obama Administration, investors are reticent to back nascent ventures. With investor cash drying up, getting by on a shoe string is becoming increasingly challenging.

This also reflects a sift in time and risk preferences, something discussed at length by Minyanville's Kevin Depew. With a decidedly cloudy economic outlook, investors are drawn to more certain, lower risk bets. Biotech startups represent the pinnacle of investor speculation, as evidenced by their challenge to find fresh backers.

One positive, and something many in the scientific community are pointing to hopefully, is President Obama's support for stem cell research and increased funding for the National Institutes of Health. Greater government assistance, they expect, could give fledgling companies the time and resources they need to make the next big breakthrough.

LinkedIn Cashes In

The following post first appeared on Minyanville.

Social networking is moving from infancy to adolescence, as the market landscape evolves and competing business models vie for superiority.

Venture capitalists are betting LinkedIn can thrive in an increasingly crowded space, as a consortium of investors are pouring new money into the company. According to The Wall Street Journal, a $53 million capital raise brings the company's total value to $1 billion.

LinkedIn targets professionals looking to keep in touch with their peers, enabling users to find past colleagues, recruit new employees and troll for potential business partners. In contrast to rivals Facebook and MySpace, LinkedIn charges for access to the site's most valuable information. The company claims it's profitable, earning money from subscription fees, online advertising and recruiting services offered to big companies.

The new investment is the latest in a trend of money being thrown at social networking sites with the hope they can turn eyeballs into dollars. News Corporation (NWS) scooped up MySpace for $580 million in 2005; in October 2007 Microsoft (MSFT) paid $240 million for a tiny stake in Facebook; and just last month Comcast (CMCSA) bought address book management site Plaxo for $175 million.

LinkedIn CEO Dan Nye claims the company plans to remain independent, but speculation is swirling about an outrigh purchase or IPO.

Meanwhile, competing networks jockey for users. Facebook and MySpace are seeking pure scale, offering everything to everyone, attracting customers with a myriad of services and products. Capitalizing on their user base is proving to be difficult, however, as the companies are struggling to turn a profit. In a slowing economy, the banner advertising business model is increasingly hard to maintain.

LinkedIn, along with other niche players like Plaxo and Minyanville's Exchange, are trying a more targeted approach. They aim to connect users with like interests and look to capitalize on productivity instead of the creation of a virtual cocktail party.

The debate then hinges on whether users prefer one catchall network, or individual memberships to a series of more exclusive clubs. Think velvet ropes versus free shots, a debate rages with no apparent end in site.