Stepping Out, Not Up: Better Returns for VCs Through M&A?
This article was originally published in Start Up
IPOs are no longer a liquidity event for venture investors, who are increasingly turning to M&A to help balance portfolio returns.
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Domain partner Eckard Weber has become a master of the one-two punch in venture investing. The process (now in its third iteration following Merck's $350 million acquisition of NovaCardia): find a drug no one cares about; create a low-infrastructure company around it; find a second drug; sell off the lead drug through an acquisition; develop the second drug a bit more with the same management; then sell that one too. The first deal at a minimum pays back the investors; the second deal juices the returns. It's a model many VCs want to follow.
Did the 31 biotechs who pulled IPOs since 2003 destroy value? By and large, no-thanks to a growing variety of financing and exit options, most thanks to Pharma's increasing appetite for high-value deals and deeper private equity pockets.
Biotech IPO pricing is fraught with more uncertainty than ever before, say some private investors and executives. It's worth seriously considering the alternatives. Start-Up takes a look at what is wrong with IPO pricing and how alternatives such as reverse mergers, M&A, or Dutch auction IPOs can improve biotech valuations.