New research on the VC industry turns conventional wisdom on its head.
But new research suggests that this hierarchy has quietly reversed itself over the past decade. Venture capitalists Bruce Booth (Atlas Venture) and Bijan Salehizadeh (Highland Capital Partners) recently analyzed the past 10 years of returns from nearly 1,300 VC firms, on a deal-by-deal basis. What they found was that VC investments into U.S. life sciences companies between 2000 and 2010 yielded a gross pooled mean IRR of 15% for realized deals and 7.4% once unrealized deals were included. This compares to a 3% IRR for realized IT deals over the same time period, a 4.1% IRR for realized software deals. Moreover, each sub-category of life sciences deals came in at least 2x better than did realized results of IT sub-categories. All of this is a complete reversal of the 1990s, when IT deal performance absolutely dominated life sciences deal performance. And it holds even if you remove deals done in 2000, which was just before the dotcom bubble burst. “There is a widely-held perception among both GPs and LPs that life sciences is venture capital’s ugly stepchild compared to tech,” says Booth. “So we were surprised to find what we did.” Four notes on the study:
In the world of venture capital, tech is the movie star and life sciences the second banana. The champion and the also-ran. Just look at the most recent Forbes Midas List, in which the first life sciences investor doesn’t appear until #16 (Bryan Roberts of Venrock).