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.
For Sequoia Capital’s perspective, their difficult-to-read blog provides a detailed explanation for the deal. Don’t like the numbers? Robert Cyran at the NY Times places it all into perspective.
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:
What are the LP’s thinking right now?
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Both in an analysis by Bijan Salehizadeh and myself in Nature Biotech (here), as well as in an unpublished analysis from Correlation Ventures, healthcare venture capital actually outperformed all other venture sectors in the past decade, in particular with realized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.
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Thanks for the shout out Carlos. As you say, I’m sure a lot of limiteds are scratching their heads but I think there is are lot of interesting companies popping up on the data side of biotech. Two that I just learned about are Benchling and Transcriptic.
That said, there’s a lot of work to be done. For example, on the synthetic biology side computational tools that mimic what happens in the cell are still nascent. There’s an open source tool called Tinkercell and Autodesk,
makers of CAD software, are tackling this but there are lot of other opportunities.
Finally, for those who are interested in learning more about why the Whatsapp deal probably made sense for Facebook, this post on the Textit blog
explains why WhatsApp is as popular as it is — outside the Western World — where most of the growth is. Maybe that’s a place where biotech needs to be thinking.