A few years ago, when I was working on my diploma thesis in genetics, the lab next to mine was the former home of the founder of the extremely successful Qiagen Company. His colleagues, still working at the bench, had the impression that he won the first prize in a lottery and that it was absolutely desirable to follow in his footsteps. Like other young scientists who hear similar stories of building up a famous biotech company, my thoughts turned to doing the same.
However, the lack of good and practicable ideas on which to base my own biotech company meant that this idea had to be postponed, and instead I followed the standard academic pathway. While doing my doctoral thesis, I came across a business angel who asked me to give my opinion on a biotech company's business plan. Business angels are people who invest money in very young companies consisting of only a few people, and who give them management advice in order to help them build up the business. He was a specialist in the IT business, and didn't know much about biotech so wanted some insight into the technology, the market, and the likely competition for this proposed biotech firm.
This was my first insight into the idea of investing in young companies. However, I kept in touch with the angel investor throughout the remainder of my PhD, and through this informal contact I got an insider's view of a number of business proposals and learnt a great deal about the commercialisation of science. Thus for me the decision to pursue a career in the business of biotech investing was easy, especially since at a time of stock market hype, venture capital companies were looking for people with biotech knowledge and business experience. With my background, finding a job was not so difficult: IMH Venture, one of the leading venture capital companies in Germany, was the first firm I applied to and they offered me a position. The times then were very good for business biologists, and I had some offers from biotech start-ups as well.
What Is Venture Capital?
Most world-changing inventions require a lot of capital to turn them into a marketable product. If an inventor can't get capital from a bank in the form of a loan, from their own pockets, or from their family to found a new company, he or she seeks support from a venture capitalist. Venture capital (VC) and other private equity firms are pools of capital, typically organized as a limited partnership, that invest in companies that show the potential for a high rate of return. Venture capital represents equity capital and not a loan as financing from a bank generally does. As a consequence, a VC company owns a part of the new firm and is a shareholder with all a shareholder's associated rights.
In general, VC's give advice on most aspects of the business and decide together with the management important issues relating to strategic and financial topics. Furthermore, the VC has a seat in the board (in Germany called Beirat or Aufsichtsrat) so that it can fulfil its supervisory function. In a timeframe of about 3 to 10 years, depending on the stage of the company's development and the strategy of the venture firm, the VC eventually seeks to exit the investment. Most of the exits occur through a merger or an acquisition of the company by another company. In recent years, initial public offering (IPOs) have been in the limelight, and during the IPO boom of 1999 and early 2000 this was the most glamorous and visible type of exit route.
The responsibilities of a biologist in a VC firm are presupposed by the VC business itself. The complete process of investing in, supporting, and eventually exiting the companies is typically undertaken by a single VC team. When considering an investment, the VC team begins by carefully screening the technical and business merits of the proposed company. This task requires a broad technological knowledge and economic understanding. Beyond that, an open personality and the ability to get on with a multitude of characters is a necessity.
Clearly, understanding the technology is not the problem for a biologist, but to make a business out of excellent science is not as easy as it seems. To get a feeling for this, it is recommended that someone interested in this career path get a thorough grounding in the principles of economics, either through a university course or in a private business school. The specialised venture business itself can only be learned in an experienced team of VC professionals. A detailed description of the many different sides to this job would take a lot of space, but to summarise, support of a biotech company's development through its different stages is the day-to-day job.
Future Prospects for Biologists in Venture Capital
Recent stock market developments, coupled with an economic downturn in Germany, mean that the VC business itself has had to consolidate, too. Companies have failed to yield the stellar returns expected of them, international investors have become cautious, and VC companies have had to dismantle. Consequently, very few jobs are available in this industry today. But the unfavourable economic environment is bound to change, and when it does, biologists with some business experience will again be in demand, not only in financial businesses like VC and investment banks, but also in biotech companies, which need to become much more astute as they mature.