Delayed Investment

It’s not yet clear to what extent the economic crisis that hit our economy in the last month will affect new industries such as the neurotechnology industry. But it’s likely that startup firms and established players alike will see some drying up of capital sources, at least for the near term.

Though many economists consider healthcare to be one of the sectors that will be relatively immune to the downturn now confronting global markets, there is real concern that venture capital financing and funds from public markets will be much harder to come by in the months ahead. At the opening session of the San Francisco BIO Investor Forum devoted to capital access this month, the mood was downright gloomy. One of the panelists, Oleg Nodelman of Biotechnology Value Fund, quipped that are only two viable strategies for raising capital these days: a bikini car wash and a trip to the roulette wheel at a Las Vegas casino.

The outlook at this year’s Neurotech Leaders Forum [see article, p7] was somewhat more optimistic. In a closing investment panel moderated by Bruce Jenett of DLA Piper, venture capital professionals Rob Abrams of Sanderling Ventures, Leslie Bottorff of ONSET Ventures, Karen Boezi of Thomas McNerney & Partners, and Peter Fair of the finance company TriplePoint Capital offered their views on how the current economic climate would affect investment opportunities for neurotech startups.

Though VC firms will still have capital to invest, many firms will need to devote funds to shoring up their current portfolio firms, which will tighten available capital for new investments. And VC firms are susceptible to default of one or more of their limited partners, which could negatively impact startup funding. The poor climate for initial public offerings limits the exit strategies for VC firms and lack of capital may impact M&A activity. Rob Abrams of Sanderling thinks that 2011 will be a better timeframe for M&A activity. Still, the panelists agreed that neurotechnology devices and therapeutics still represent a promising business opportunity and advised entrepreneurs to be looking for ways to minimize capital requirements and knock down risks that confront startup firms in this space.

Though it is a new field, our industry has weathered previous economic downturns. Indeed, this publication was launched just a few days prior to September 11, 2001, and languished—as did many of the firms in the business—in the weak economy and morbid stock market that followed. But we, and the new industry we were covering, persevered and lived to see an exciting market develop over the following years. We’re confident that the same fate awaits participants in today’s neurotechnology industry.

James Cavuoto
Editor and Publisher