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Friday, 09 November 2012 11:12

State needs life sciences success to attract more VC funds

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John Hoesley and Sam Hogg take part in presentation at MichBio.  John Hoesley and Sam Hogg take part in presentation at MichBio. PHOTO: Mark Sanchez

LANSING — Nothing sells like success, and once Michigan’s maturing life sciences industry can generate more success stories, chances are that venture capital will follow.

That’s what speakers said Thursday during the annual MichBio Expo in Lansing.

Citing an often-heard theme that Michigan suffers from a lack of venture capital to support startup businesses, speakers said the industry continues to mature after a decade of major public and private sector investments to grow life sciences in the state.

When the industry can start generating profits for investors on a regular basis, they in turn will become more willing to support venture funds that invest life sciences.

“As a whole, the industry needs to generate better returns, and that will whet the appetite,” Sam Hogg, partner in Open Prairie Ventures, said during a panel discussion on getting venture capital back into life sciences.

The Effingham, Ill.-based Open Prairie opened an office in Kalamazoo this year after partnering with the $65 million Southwest Michigan Life Science Venture Fund.

One of the hurdles facing life sciences is the decade it generally takes to generate a return on investment, even for a successful company. Investors tend to want a much shorter ROI period of perhaps three to five years, which creates problems for funds that focus on life sciences to attract investors such as high net worth individuals.

“Until we get those returns, it makes it very difficult because investors have a very short memory and are very impatient,” said Dale Grogan, co-managing director of the $15.1 million Michigan Accelerator Fund I in Grand Rapids. “That is not the nature of life sciences investing because you’re building innovation along the way.”

Despite the difficulty, speakers agreed that Michigan’s life sciences industry is on the right track. Patience and more time is needed to breed more success stories that can lure more investors and attract more attention from large funds on each coast that in recent years have begun to look more often to the Midwest for innovations to support.

Michigan, with its strong research universities, is generating a strong pipeline of innovations and startup companies that need funding, speakers said.

“We have a long way to go, but we’ve come a long way,” said John Hoesley, managing director of the Chicago office of Silicon Valley Bank that invests in life sciences, information technology and agricultural technology.

“Stay the course. The commitments made over a period of time, you’re starting to see the early success of it,” Hoesley said. “You really have to keep plugging along at it.”

Venture investing in life sciences had fallen off in recent years.

Through the third quarter, the amount of venture capital invested in life sciences was off 19 percent and the number of deals funded was down 12 percent from 2011. Investing in the medical-device sector alone declined 37 percent in value and 37 percent in volume to $434 million going into 65 companies.

In Michigan last year, venture investors put $100 million into 30 deals, 22 of which involved follow-on investments. Nearly half of the money went into firms involved in life sciences.

Read 1930 times Last modified on Tuesday, 27 November 2012 12:40
Mark Sanchez

Senior Writer

msanchez@mibiz.com

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