Follow The Money: In Life Sciences, Private Cash Filling Funding Gap

As venture capital funding falls along with broader confidence in the economy, life sciences companies have seen a drop in their funding, but a longtime player in the real estate world has taken an interest in biotech, providing a crucial infusion of capital.

Private investments, including family funds, have helped fill in some funding gaps being left by more cautious venture capitalists. In some cases, they’re even investing in lab space and developments directly. This new source of funding has become more and more important to giving promising startups more runway and helping them pay the rent.

The growth and expansion of life sciences real estate and development tracks closely to the investments being made in biotech startups, which makes recent softening in the venture capital market a concern for anybody building and leasing lab space.

Roughly one-fifth of what are called family offices — private wealth management firms advising and investing for wealthy individuals or family fortunes — have invested in healthcare or biotech in the last three years, according to Alastair Graham, who tracks these types of investments through his database, Highworth Research.

According to a report earlier this year from a pre-crash Silicon Valley Bank, healthcare innovations are a “key focus” of this group of investors; while their total annual global VC investments have declined, slipping by more than half to $65B in 2022, they still make up just under 15% of total investment, and they have bet big on healthcare and biotech. 

Vasi Yiannoulis-Riva, a real estate partner in Withers’s New York office, which tailors to high net worth individuals, specializes in commercial real estate, and has found many clients talking about biotech and life sciences real estate investments. She told Bisnow that there’s “definitely an interest in that sector, and I expect we’ll see more of it, it’s an attractive investment.”

Lots of her clients have been inquiring about direct investment in specific life sciences real estate projects, especially in the Boston area. Many high net worth foreign investors see the sustained need for these properties for the future, despite a momentary down market. 

These family funds have been joined by new private equity groups that have also zeroed in on life sciences as a steady growth market at an uncertain time. JPMorgan launched a new private capital team dedicated to the sector in November, joining existing groups like Blackstone. 

According to the Financial Times, this class of private investor sees value in startups pursuing the use of artificial intelligence and machine learning for drug discovery and advances in cancer treatment, and has been animated by larger social shifts, such as changing demographics, technological progress and the unsustainable trajectory of healthcare costs in the U.S. and UK. 

This influx of new money has been especially useful in plugging gaps in early stage startup funding. Series A rounds for biotech have been mostly steady, but additional rounds have been harder to come by as traditional investors seek out sure bets in the form of successful clinical trials or convincing research. Investors will likely “remain hesitant and increasingly selective,” according to an analysis from Wellington Management. An SVB employee dubbed the situation a “Series A cliff.” While 356 firms raised a Series A between mid-2020 and the end of 2021, only 102 had a Series B in 2022, per data in Biopharma Dive.

“These companies are running out of money,” Chris Miller, a partner with Troutman Pepper who works on private funding deals, told Biopharma Dive. “That’s a much bigger issue in biotech right now.”

Family investors, which operate on much longer timelines than others, often feel more comfortable funding biotech bets that may take more than a decade to pay off. It may become an increasingly important option, as biotech startups have been more cautious, seeking to slow their burn rate, conserve cash and focus on only the most promising cures.

Some of that uncertainty can be seen in the life sciences leasing market, which has slowed down, especially pre-leasing of some new, significant developments in markets across the country.

These investors have also increasingly been pouring money directly into real estate. In Europe, the Noé Group, which invests on behalf of the UK-based Noé family, invested in an Eindhoven biotech campus, reasoning that a collection of labs and biomanufacturing spaces represented a good bet on a burgeoning industry. The family also recently spent $32M on lab space in Madrid. In the United States, Instacart CEO Fidji Simo invested in a medical and research center in Salt Lake City, the $35M Metrodora Institute, in part inspired by her own experiences with immune diseases.