Author: Elizabeth Ducan, Cortado Ventures Summer Intern, 2024
As we all know, the COVID-19 pandemic required pharmaceutical companies to put to the test how fast vaccines, treatments, and diagnostics could be developed, tested, and implemented on a large scale. With this wave of need in the biotech sector, investments in biotech startups took a major leap. From 2020–2022, all eyes were on anything related to ending the pandemic, which meant that almost all eyes were on biotech. This new spotlight encouraged investors to put biotech companies on a pedestal and take more risks because the benefits were desperately needed and the rewards could be exponential. A few companies, such as Pfizer, Moderna, and Johnson & Johnson, were leading the charge and even became household names. Before we dive into the effect of COVID, let’s first look at the history of biotechnology as a whole.
The History of Biotechnology: Genentech
The idea of biotechnology has been around for centuries, but the modern biotech companies we think of started around four decades ago. This began when biochemist Dr. Herbert W. Boyer and geneticist Stanley Cohen genetically engineered Escherichia coli (E. coli) to be resistant to an antibiotic. This advancement created the field of recombinant DNA technology. Robert A. Swanson, a venture capitalist, convinced these scientists to create a company so he could invest, and the result was Genentech being created in 1976. Swanson saw the commercial potential for what Boyer and Cohen had created, and wanted to capitalize on the gains he believed could be made.
Genentech had many scientific breakthroughs, such as producing human insulin. Today, Genentech has a post valuation of $106.36 billion (PitchBook, 2024). Swanson’s investment of $500 for 12% of the company saw a CAGR of 98% when Genentech was taken over in 2009. This initial investment resulting in a hugely successful return, and company overall, set a trend for biotech companies to work with venture capitalists. While biotech companies may be riskier than most other VC investments, they could also have some of the greatest outsized returns (PitchBook, 2023).
The Uptick of Biotech: COVID-19
The COVID-19 pandemic quarantine time period was detrimental to many industries, but not for biotechnology or VC. The government was focused on what could control or put an end to the pandemic, i.e. a vaccine, treatment, and diagnostics. Because quarantine limited the interactions VCs could have with potential investments, they were focused on what the government had in the spotlight. VCs invest in what could give them the best returns and as the world needed a solution to the pandemic, and biotech would most likely provide that solution, the industry was even more appealing. And so, as most companies were making job cuts, biotech companies were expanding to try and capitalize on this demand.
As seen in Figure 2 below, the number of biotech VC deals and the amount VC invested into biotech increased to a peak in 2021, while the biotech deal size increased then stayed somewhat consistent since 2021.
Not only did the number and size of deals increase, but the percentage of biotech deals to all VC deals increased as well. Figure 3 shows that from 2019 to 2020 the percentage of biotech deals almost doubled, and has continued to stay above pre-pandemic levels. 2023 saw the highest percentage of biotech deals, which indicates that biotech and VC deals are continuing to rise despite the COVID-19 buzz being over.
The Future of Biotech
Predicting the prevalence of certain sectors in VC can prove somewhat difficult. However, the increase in funding as well as new advancements in technology allows for new biotech to be more easily created and proves that the sector has great promise to sustain its newfound popularity. Past events such as world wars and pandemics that led to great human suffering also led to significant advances in healthcare. Biotech is posed to lead the advance. Furthermore, artificial intelligence is expanding its way into a variety of sectors, which could increase the advancement exponentially. I don’t know about you, but I’m excited to see what’s next for biotech!
About Cortado Ventures
Cortado Ventures is an early-stage venture capital firm that invests in ambitious, growth-driven companies to define a new generation of economic prosperity for the Midcontinent region. As one of the largest VC funds in Oklahoma, Cortado’s focus is on tech companies bringing innovative solutions to the energy, logistics, life sciences, aerospace, and the future of work sectors. For more information, visit cortado.ventures.