Severe Funding Drought in Biotech

By MARION WEBB

San Diego Business Journal

Biotech funding continues to be a struggle in the San Diego region, one of the industry’s most prominent and until recently prosperous regions.

The San Diego Tech Coast Angels, a local group of individual investors, said they plan to invest several million dollars in 10 early-stage local biotech firms over the next three years.

But entrepreneurs hoping to get funded can expect a tough screening process.

“We probably get four, five or six applications per month, (and) of those, we invest in one company every two or three months,” said Charles Mathews, president of San Diego Tech Coast Angels.

Despite a flurry of interest in new biotech funds, the venture funding climate remains bleak. Nationwide, first-quarter venture funding for biotechnology fell 40 percent this year from the like period a year ago. VentureWire, a newsletter, reported that only 10 of the 36 first-quarter biotechnology investments were first-time, or Series A, rounds.

In San Diego, standards for investing have also changed from a year or two years ago. “Everybody is looking for a company that can move to revenue and cash break-even as quickly as possible,” said Mathews.

“In 2001 we could still get a fair valuation,” said Mark McWilliams, president and chief executive of Q3DM, a software maker focusing on analyzing data derived from microscopic testing.

“What people don’t realize is for an entrepreneur to ask for money you have to have a sense for the market, and right now, it’s probably the worst time in decades,” he said.