VCs and the Public Markets


I’ve always thought that entrepreneurs don’t really understand VCs, and I’ve always been SURE that (most) VCs don’t understand investment bankers and the public stock market. So I guess I wasn’t all that surprised when I heard two opposing comments from different life sciences VCs at a recent conference.

The first argued that today’s public market investors remain enthusiastic about ponying up for “optionality.” (I think that may be the same thing as “beta,” but I’m not sure.) As a result, this investor recommended that biotech startups need to be sure that they don’t partner away the key upside for their lead products (read: North American marketing rights), noting that stock buyers are willing to accept significant downside risk in this situation.

The second VC cited Replidyne’s recent non-approvable letter from the FDA regarding its faropenem medoxomil antibiotic that came in just six months after its IPO and triggered an instantaneous 50% hit in stock price. He argued that going forward I-bankers are going to be very hesitant to take companies public if they are within shouting distance of a key regulatory event.

So I guess the public markets are telling us that they want it both ways. That’s good work if you can get it!