Venture capitalists as gatekeepers for biotechnological innovation

Venture capitalists (VCs) aim at trade sales as a preferred exit-strategy for biotechnology companies they invest in. Therefore, VCs pay close attention to the wishes of larger (bio)pharmaceutical acquirers. In this paper we explore VCs' behavior and strategies by analyzing the technology fields and therapeutic areas in which they are invested most and which yield the highest relative returns by means of trade sales. The data show that VCs are by far most invested in oncology and this is also an area in which relatively high returns are realized. Regarding other areas, VCs could balance their average investment valuations more in correspondence with what acquirers are willing to pay. In addition, VCs have predictive insight in the types of technologies that do well and they seem to employ a strategy focused on both short-term and long-term success. They are investing most in small molecule drugs and protein/peptide therapeutics, which both yield high returns, followed by DNA/RNA technologies which underlie the possibilities of personalized medicine. We conclude that VCs act as technological gatekeepers because they are predicting long-term cure and care macro-trends.

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