As a tech VC recently told me, refuting the latest flimsy rumor of a huge tech-dominated fund contemplating significant new investment in life science, “Wow, you healthcare guys are really desperate for some good news!”
It’s true; not only are LPs looking ever more critically at VC as an asset class – especially since the publication of the Kauffman report – but the life science sector, in particular, has been devastated, and health VCs have been hurting. (Added Sept 27: See this fascinating, just-posted Xconomy profile of Avalon’s Kevin Kinsella and discussion of the current sorry state of healthcare VC.)
Part of the issue, as Bruce Booth and Bijan Salehizidah have described previously, and as Sarah Lacy summarized nicely this week in PandoDaily, is that the return profile of life science venture investments looks very different than tech in general, and consumer web (the focus of Lacy’s article) in particular.
The sex appeal of tech investing is that a relatively small initial investment can blossom very quickly to yield huge returns; the catch, of course, is that this happens very rarely, and much like at a casino, and the tremendous attention lavished upon these winners can almost make you forget how infrequently they occur.