Funding deals for San Diego startups have been slow to start this year, but several local biotech companies are still getting big investment sums.
San Diego County recorded 55 venture capital deals totaling $1.57 billion in the first quarter ending March 31, according to industry research firm Pitchbook and the National Venture Capital Association. The number of deals closed was down 26% compared to the same period last year. However, the total amount raised was nearly double last year’s $788 million.
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This was San Diego’s lowest number of first-quarter deals in 10 years. At the same time, this $1.57 billion was the highest deal value to have occurred in the first quarter over the past decade, excluding the 2021 outlier of $3.26 billion. (The first quarter of 2021 was also San Diego’s single best performing quarter, with 139 transactions).
Local life sciences companies took the lead by landing big deals, including one of San Diego’s newest companies, Mirador Therapeutics.
A team of veteran life science leaders launched a $400 million local biotech in March. This was the highest transaction in San Diego and the third largest transaction in California in the first quarter.
The Torrey Pines-based biotech is directed by Mark C. McKenna, who has worked with former leaders of Prometheus Biosciences. Their decision to launch Mirador comes less than a year after Merck acquired Prometheus, a local company focused on treating Crohn’s disease and ulcerative colitis, for $10.8 billion.
They are currently looking for targeted drugs to treat the causes of inflammatory diseases. This can include chronic conditions such as inflammatory bowel disease and other gastrointestinal, lung, or skin problems.
One of the company’s big differentiators is that it leverages artificial intelligence to discover and develop medicines using large datasets. The goal is to reduce drug development costs and make drugs effective for more patients.
For example, McKenna said Humira, a multibillion-dollar treatment for rheumatoid arthritis and Crohn’s disease, is only effective in about 10 to 15 percent of patients. Mirador hopes to focus on a subset of patients who are not being treated with drugs from big drug companies.
“What future drug development will look like is a more precise approach that actually develops drugs for specific patient needs,” he said. “It’s a little different from trial and error or a one-size-fits-all approach.”
Funding wasn’t a big challenge for Mirador. The team quadrupled its original fundraising goal. McKenna said investors are not spreading out their bets like they were in 2021. Instead, life science investors are focusing on companies backed by solid science and management teams, he said.
“We’re seeing the clouds lift in terms of capital markets in both the private and public environments, but we’re not out of the woods yet,” McKenna said.
Nationally, $36.6 billion was invested in businesses through 3,925 deals in the first quarter. The number of transactions has decreased compared to the same period last year, and the total transaction amount is at its lowest level since 2018.
Although last year was marked by high interest rates and subdued trading activity across the country, more than $300 billion of “dry powder” still awaits investment.
“This year started on the same note that 2023 ended,” said Bobby Franklin, president and CEO of the National Venture Capital Association. “While deal closings and exits have been softer and slower than we would normally like, there is plenty of dry powder and optimism in various sectors, including AI, suggesting room for growth in the year ahead. ”
While a decline in the number of deals in San Diego isn’t ideal, Mike Kren, head of Connect/San Diego Venture Group, said the increase in deal value is a sign of the region’s growth. . Looking at San Diego’s performance over the long term, he said the region is doing better than it was five years ago.
“That being said, we would also like to see an increase in the number of transactions,” Kren said. “That’s the pipeline. We’re working hard on that front.”
His organization has been working to change that by creating opportunities for more capital to flow into the region’s innovation economy. For example, next week, Connect will host a private event where his 118 venture capitalists will meet with his 30 San Diego startups.
The rise of San Diego’s venture capital scene is also evident in: PitchBook’s latest rankings One of the world’s top startup cities. PitchBook ranked San Diego 15th out of 50 cities worldwide based on the size and maturity of its startup network.
Notably, San Diego County is home to 41 venture capital firms. It has hundreds of fewer resident businesses than the other U.S. metropolitan areas on this list.
“Finding early-stage capital remains a challenge in San Diego,” Kren said. “The number of funds here compared to other markets confirms what the data points out: Sometimes it feels like our startups need to work a little harder to get those early rounds. Yes, but we still manage to do that compared to other markets.”
These deals are led by the region’s world-renowned life sciences sector. San Diego’s top five deals in the first quarter were all from healthcare startups.
Connect hosts events such as Summer Social to celebrate San Diego’s innovation economy and provide networking opportunities for startups.
(Courtesy of Connect Foundation)
After Mirador, the next biggest deals include Avenzo Therapeutics, which brought in $223.4 million. Capstan Therapeutics is his $175 million. Engrail Therapeutics, $157 million; and Mainstay Medical, $125 million.
This quarter’s top three fundraising companies were led by companies with established life science leaders with a track record of success in biotech growth.
For Cort Turner, a partner at local life sciences venture capital firm LYZZ Capital, it’s no surprise that all of San Diego’s strong deals come from veteran leaders. Investors have used the difficult fundraising period of the past year to reevaluate their portfolio companies and consider how to prioritize the cash they have.
This is consistent with a national trend for investors to shore up the most promising companies before diving into new ventures.
Of course, biotech requires more capital and time to complete research and development and clinical trials compared to what is required for traditional technology or consumer product startups. So, Turner said, it’s an obvious question to ask the “superstar” biotech founder what’s next.
“I think that’s an easier conversation to have in difficult times, rather than hearing 50 proposals and then trying to weed out these 50 unknowns and create a theory for making investments,” Turner said. said.
Two companies also debuted on the public market in San Diego. Although a small number for the first quarter, it was a bright spot in the otherwise quiet IPO market.
Boundless Bio, a local clinical-stage oncology treatment company, raised $100 million in an initial public offering. Local biopharmaceutical company Continuum Therapeutics also went public, raising about $110 million on April 5th.
“Deals are taking a little longer than they used to,” Turner said, but he expects trading to be brisk this year, given institutional investors and wealthy individuals paying attention to San Diego’s innovative ecosystem. I am optimistic that it will become a reality.
“The window for an IPO will definitely open,” Turner said. “And I think companies that are in the clinical stage and can show positive data in phase two will be rewarded by the market.”
