This week, the financial press is going bonkers over the acquisition of WhatsApp by Facebook for $19 billion in cash, stock, and Facebook tchotkes.
We’re not experts in this space, so we’ll defer to others to explain all of this too us. For an excellent explanation of the “Why” behind the transaction, check out Benedict Evans’ lucid post.
Closer to home, and hidden in all the hoopla, was the acquisition of Forest Labs by Actavis for a “mere” $25 billion. As Karl Schmieder points out:
Somewhere, there are LPs who are invested in biotech VC funds who are scratching their heads. Sequoia Capital supposedly only invested $8 million into a company that was acquired for $19 billion 3 years later.
This kind of speed, ROI, and efficient use of capital is simply impossible in our world.
Now we know what a lot of you are saying. The world doesn’t need another messaging app. What the world does need are better treatments for cancers, fibromyalgia, pain, etc., etc. And we totally agree.
And, as Bruce Booth has eloquently pointed out many times in the past, it is very possible for limiteds to generate excellent returns in biotech early stage investing:
Both in an analysis by Bijan Salehizadeh and myself in Nature Biotech (here), as well as in an unpublished analysis from Correlation Ventures, healthcare venture capital actually outperformed all other venture sectors in the past decade, in particular with realized returns.
Nevertheless, with limited under increasing pressure to deliver returns from the high-risk portions of their portfolios, you can’t blame some of them for thinking twice about investing in biotech funds.