October 25, 2018
Synthetic biology investors are a mix of life sciences and traditional technology investors
Entrepreneurs in synthetic biology raising new rounds of investment sometimes have a hard time finding the right investors. Traditional healthcare investors who have the expertise required to evaluate the underlying technology are usually not interested in companies not pursuing lucrative medical applications. Traditional tech investors who may be interested in companies pursuing consumer, industrial, or agricultural applications do not have the scientific expertise necessary to make an informed decision. To determine what kind of investors are interested in synthetic biology companies, we can examine the characteristics of groups that have already made investments in the space.
Roughly two thirds of investments in synthetic biology companies came from institutional venture capital firms. The main objective of these groups is to achieve return on capital, and these firms are primarily funded by private investors. Alexandria Real Estate Equities is unique in that it is a public real estate investment trust that focuses on renting lab space to life science companies. They are one of the most active firms in synthetic biology investing, with 8 such companies in their portfolio. Their connections in real estate are certainly helpful to the companies in which they invested, as obtaining affordable lab space is one of the most difficult aspects of building a synthetic biology company.
The other third of investments came from a mix of sources. Early stage investors like angels, angel groups, and accelerators made up the majority of the remaining investors, but strategic corporate investors also had a significant presence. IndieBio and RebelBio, accelerators funded by Sean O’Sullivan Ventures (SOSV), are by far the most prolific funders of synthetic biology companies. The rest of investments came from family and government offices. We can compare this distribution to the distribution of investor types in other fields to get an idea of what sets synthetic biology investors apart.
Distribution of investors in traditional tech, synthetic biology, and traditional healthcare companies by type of firm
For most types of firms, the fraction of rounds invested in synthetic biology falls between the fraction in traditional tech and healthcare. For example: angels make up a larger portion of investors in traditional tech than synthetic biology, while also comprising a larger portion of investors in synthetic biology than traditional healthcare. Traditional healthcare receives a much larger portion of investments from institutional venture capital firms.
There are three types, however, that make up a greater fraction of investors in synthetic biology than in either tech or healthcare. These are strategic investors, family offices, and accelerators, which gives us some insight into the perceived benefits of synthetic biology companies. Strategic investors are likely looking to gain insight into the new innovations that may disrupt their business, and these are often corporations that are in fields that have not historically had much interest in biotechnologies. The main mission of family offices is to grow capital, but they often have altruistic goals as well. Many synthetic biology companies offer more environmentally-friendly products than the existing companies they seek to disrupt, and family offices are likely responding to that. Finally, the increase in interest from accelerators likely is linked to the need of synthetic biology companies for affordable lab space, which is provided by most accelerator programs.
We can also compare investors in other fields to those investing in synthetic biology across a broad set of metrics. The median healthcare-focused firm is older, having been founded in 2000 versus 2004 for the median tech or synthetic biology investor. Even though they are older, healthcare investors have made the same median number of investments as synthetic biology investors – 42. Tech investors, however, have only made a median of 30 investments. Synthetic biology investors generally make more investments per year than other types of investors.
However, synthetic biology investors are generally less successful than other types of investors. They have a lower investments to exits ratio of 0.13 compared to 0.15 for tech investors and 0.19 for healthcare investors. The tech and healthcare investor group was normalized to the synthetic biology investor group with respect to the stage of the companies and the years of the deals. With this in mind, the difference in the investments to exits ratio isn’t necessarily because synthetic biology companies receive funding at an earlier stage, are more risky, or are not yet able to exit. It may be that synthetic biology companies are less likely to successfully exit.