Biotech in the Shadow
Boston investors reluctant to look west
If it's true that good companies (eventually) find good investors, then Worcester-area biotechnology and life sciences startups must not be any good, at least in the eyes of larger Boston-based venture capital funds.
Of the 17 venture capital deals involving biotechnology companies in the state in the first quarter of this year, only one involved a company outside the Route 128/Boston area, according to statistics obtained from the PricewaterhouseCoopers annual MoneyTree Report of venture capital deals.
The lone deal involved nearly $10 million in early stage funding for Ashland-based ConxCys Inc. The deal involved four venture capital funds, two from the Boston area, two from Europe.
As of press time, three Boston-area venture capital firms did not return calls seeking comment for this story.
Raw deal
Indeed, at least one local entrepreneur sees a pronounced bias in VC funding against companies not founded or located in or near the Boston/Cambridge life sciences "super sector."
"Boston investors are reluctant to invest in biotechnology companies in Massachusetts if they're not in Boston," said Jan-Eric Ahlfors, of Worcester-based Novagenesis OY, a research and development firm specializing in neuro-degenerative disease. "They will look everywhere else, California or the Midwest or no-man's land before they look 50 miles west into Worcester."
Ahlfors made his comments at a recent roundtable discussion of the state of the life sciences market in Central Massachusetts with Gov. Deval Patrick at Abbott Laboratories in Worcester.
While other area investors and entrepreneurs were reluctant to speculate on any overt or otherwise intentional bias toward Worcester life science startups, the numbers do suggest at least a de facto prejudice.
"In general, it seems to be a true statement," about Worcester not getting its fair share of VC funds, said Will Cowen, managing partner at Westborough-based Long River Ventures, an investment fund specializing in early-stage health care and IT companies. His firm got its start in Worcester, but moved to Westborough several years ago. Cowen said that more than 80 percent of venture funding for startups in New England goes to the 128/Boston area and Fairfield County, Conn., outside New York City.
"People tend to invest close to home," Cowen said.
Will Cowen, managing partner at Westborough-based Long River Ventures, an investment fund.Not in my back yard
While the distance between Worcester and Boston may not seem too far, for investors seeking a rapid and substantial return on investment, keeping a close eye on their investments is a must, Cowen said.
"Early-stage investing is a hands-on business, and people need to be able to get to their portfolio companies," he said.
Having so many life sciences companies clustered in Boston and Cambridge only serves to make the location more desirable for both companies and investors, said Kevin O'Sullivan, president and CEO of Massachusetts Biomedical Initiatives, a
Worcester-based biotech incubator facility.
"No doubt, Kendall Square and Cambridge are the life sciences center of the universe, so the venture capitalists are there too," he said. "Do they want their companies in their own backyard? Of course."
Silver lining
It's not all bad news for local biotechnology entrepreneurs. Even without VC funding, there are ways to gather enough capital to head out on their own.
Paul Wengender, CEO of Blue Sky Biotech, a contract-based research company headquartered in Worcester's Gateway Park biotech complex, started his own company a little more than five years ago after coming from pharmaceutical giant Pfizer.
Wengender said he pursued VC funding, but found that private, high-net-worth angel investors were more suited to his needs. Wengender said he chose angel investment over venture capital because he was unwilling to cede control of some of his business operations to the larger funds.
"When you get money at a low interest rate versus giving away ownership of your company, the choice was pretty much made for you," Wengender said.
Old fashioned business savvy doesn't hurt either, Wengender said. He said he went in front of several VC firms, and while unsuccessful, he took their dismissals as constructive criticism, making his business plan stronger.
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