An Overview of the Texas and Houston Tech/Life Science    Investment Activity        December 2012        Stephen Banks
Biotech and Medical VentureInvesting 2009 – 2012 (prel)    $ Billions    Source:    NVCA/PricewaterhouseCoopers           ...
Biotech and Medical VentureInvesting Texas 2009 – 2012 (prel)    $ Millions                                   Includes    ...
65% of Life Sciences Investment Flows to California and  New England Companies (12 months ending 12/11) Source: Pricewater...
Texas Venture Deals 2011 – 2012 Texas                        2011                  2012      Software -             $275 M...
Texas Investment in 2011 by Deal Count             171 Deals   Source: PricewaterhouseCoopers/Venture Economics/National V...
Houston & Texas Life Science Industry 2012     – Selected Current Opportunities•   Pharmaceuticals -     – Human – PLX Pha...
Houston Opportunity• Houston has the medical research base on a par with  Seattle or Raleigh Durham• Two Venture Firms hav...
Houston Life Science Industry       Networking Resources• BioHouston – www.biohouston.org   – Annual Life Science Conferen...
Steve Banks BCMT Record•   14 Companies started in 1987 - 1996 period     – First round investors put in $28M and earned ~...
Lessons from BCMT a Decade     of Growth 1990 - 2000• Developed ~15 companies during period• Companies raised in excess of...
Two Academic Liquidity Events• Lycos – CMU start-up in 1994/5 that went public  in1996 – CMU ownership ~ 8% post IPO, tota...
Lexicon Genetics •   Baylor scientists contact BCMT in 1994 with concept for     mouse genomics company •   BCMT develops ...
Lexicon Stock Price                      14
Conclusions• There will be future technology and biotech  booms• The time to get a new venture going is now• It is hard to...
Characteristics of An Investable            New Venture•   Disruptive•   Improve quality, reduce cost•   Patient empowerin...
Strategies for Building Value in the Tough     Financing Environment of 2012Use a board seat to keep themanagement focus o...
Strategy for Entrepreneur•   SBIRs, STTRs, ATPs•   State & local grants•   Grateful patients•   Less-dilutive financing   ...
Revenue • Cheapest form of capital • Bargain for early revenue   – Push the business plan toward revenue   – Reward good m...
Managing for Early Exits• A large round without clear milestones can lead to  a very difficult second round negotiation• E...
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An Overview of the Texas and Houston Tech/Life Science Investment Activity by Stephen Banks

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Stephen J. Banks is the Venture Partner at S3 Ventures. He is a pioneer in venture capital and life sciences. Banks has earned a distinctive track record in backing Kleiner Perkins and co-investing in several of its outstanding companies including Genentech, Hybritech, and Tandem. He he been involved in the formation of more than 30 new technology companies spun out of the Baylor College of Medicine including Lexicon, GeneMedicine, ForeFront, Triplex, PrimaCis, and Zonagen. Banks also established BCMT’s venture fund and led its Venture Advisory Board, consisting of prominent investors including Oxford Biosciences, Domain Associates, Versant, VenRock, EuclidSR, ARCH, J&J Development, and Polaris. He taught a graduate venture capital course at Rice University during the years 1992 to 2005. Mr. Banks holds an M.B.A. from the Harvard Business School and a B.S. in Physics from the Massachusetts' Institute of Technology.

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An Overview of the Texas and Houston Tech/Life Science Investment Activity by Stephen Banks

  1. 1. An Overview of the Texas and Houston Tech/Life Science Investment Activity December 2012 Stephen Banks
  2. 2. Biotech and Medical VentureInvesting 2009 – 2012 (prel) $ Billions Source: NVCA/PricewaterhouseCoopers 2
  3. 3. Biotech and Medical VentureInvesting Texas 2009 – 2012 (prel) $ Millions Includes ABT Reata deal ~ $300 M Source: NVCA/PricewaterhouseCoopers 3
  4. 4. 65% of Life Sciences Investment Flows to California and New England Companies (12 months ending 12/11) Source: PricewaterhouseCoopers/Venture Economics/National Venture Capital Association MoneyTree™ - 2012
  5. 5. Texas Venture Deals 2011 – 2012 Texas 2011 2012 Software - $275 M $375 M Industrial/Energy – $397 M $210 M Semiconductor – $ 48 M $ 73 M Life Science - $433 M (a) $204 M Other – $443 M $193 M Total $1,596 M $956 M Life Science as Per Cent of Total Investing National – 26% 23% Texas - 27% 21% Few Texas VC Firms Focus on Life ScienceSource: PWC Money Tree Data Includes ~ $300 M ABT – Reata deal
  6. 6. Texas Investment in 2011 by Deal Count 171 Deals Source: PricewaterhouseCoopers/Venture Economics/National Venture Capital Association MoneyTree™
  7. 7. Houston & Texas Life Science Industry 2012 – Selected Current Opportunities• Pharmaceuticals - – Human – PLX Pharma (coating NSAID), NanoSpectra (Rice & MDACC, gold nano shell to target cancer)• Biotechnology - – Human – many CPRIT driven opportunities – Research Tools – n3D Bio (Rice & MDACC, 3D cell culture), Resonant Sensors (label free bioassay tool for biomolecular screening)• Medical Devices –Monebo Tech (adv cardiac monitor, Austin), Endothelix (vascular monitor), CardioNexus (Fairway – Panasonic JV), OrthoAccel (dental device) , Houston Med Robotics (Texas Heart Inst, improved vascular access) , Nimbic Sys (surgical site infection protection), TraumaTec (portable cooling for brain), Procyrion (small diameter catheter delivered heart assist device), CorInnova (heart assist balloon pump )• Health Services – Medical Metrics (software for orthopaedic diag.), MediCode (software to assist creation of ACOs), Blue Box Health (manage CHF patients post discharge)• Health Information – Spring Medical (EMR for group practice mkt), TECNEX Sys. (EMR for small practice market), Secure Healing (HIPPA compliance tool for IT dept)
  8. 8. Houston Opportunity• Houston has the medical research base on a par with Seattle or Raleigh Durham• Two Venture Firms have presence in Texas with focus on Life Science – Woodlands-Essex – national firm (nominal local investment) – Sante Ventures – regional/national firm• Houston area generates four to six investable life science deals each year• Few National VC’s prospect the Houston market• An active VC or angel investor can screen these deals and invest on favorable terms with little competition
  9. 9. Houston Life Science Industry Networking Resources• BioHouston – www.biohouston.org – Annual Life Science Conference – Feb 2013 – Monthly breakfast meetings• Houston Tech Center – www.houstontech.org – Dedicated life science focus – Deborah Mansfield is the key contact – Coordinator for Southeast Texas region for Emerging Tech Fund• BioMed Breakfast Club – www.bmtchouston.org – monthly venue for topical speakers• Rice Alliance – www.rice.edu/alliance – Co-sponsor of annual BioHouston Life Science Conf – Sponsor of major MBA business team competition – April 2013 – Many excellent tech focused programs
  10. 10. Steve Banks BCMT Record• 14 Companies started in 1987 - 1996 period – First round investors put in $28M and earned ~ 35 % IRR – Companies raised over $650M – Seven reached Nasdaq listing: ARNX, FFGI, GMED, LDNA, LEXG, MDLI & ZONA (Total value for BCM & BCMT at IPO of these companies ~ $110M) – Private merger transactions included Genosys ~ $40M and Meretek ~$12M (total value of each deal) – Cash back to Baylor & BCMT in excess of $27M from portfolio sales – Baylor held $25M of securities in these companies at 6/30/03• 17 Companies formed 1997- 2003; these companies raised in excess of $70M during the 2000 – 2003 period• BCMT companies in Houston area ~ 700 employees• BCM & BCMT portfolio value ~ $42 M - December 2002
  11. 11. Lessons from BCMT a Decade of Growth 1990 - 2000• Developed ~15 companies during period• Companies raised in excess of $100 M of private capital• Seven companies got to NASDAQ directly or via acquisition• A board seat was important to keep abreast of activities at company and to plan financing event• Need staff members that have experience with developing technology into viable companies to serve as the board member (provide training and guidance to staff member)
  12. 12. Two Academic Liquidity Events• Lycos – CMU start-up in 1994/5 that went public in1996 – CMU ownership ~ 8% post IPO, total market value ~ $300 M• Lycos sold to Telefonica in 2000 for $12 B• Lexicon – BCMT start-up in 1995 that went public in 2000• Lexicon – BCM & BCMT owned ~ 10% of company post IPO with peak market value of ~ $200 M
  13. 13. Lexicon Genetics • Baylor scientists contact BCMT in 1994 with concept for mouse genomics company • BCMT develops business plan in early 1995 • Dr. Sands leaves Baylor to become pres. • Private Investor puts up $3 million and subsequent $4 million • Merck Genomic Inst contract April 1997 for $8 million • Raised $31 million with Punk, Ziegel May 1998 • IPO April 2000 to raise ~ $200 M net • Baylor/BCMT own ~ 10% of LEXG that at one point is worth over $200 million
  14. 14. Lexicon Stock Price 14
  15. 15. Conclusions• There will be future technology and biotech booms• The time to get a new venture going is now• It is hard to develop a big winner from a tech transfer program – but when you do• It is harder to get officers and institutional trustees to agree on a plan to sell such a winner• A lot of value can be lost in a bear market like 2001 – 200215
  16. 16. Characteristics of An Investable New Venture• Disruptive• Improve quality, reduce cost• Patient empowering• Differentiated• Cloud-based & internet connectivity
  17. 17. Strategies for Building Value in the Tough Financing Environment of 2012Use a board seat to keep themanagement focus on:• Non-dilutive financing• Revenue• Managing for early exit• Anti-dilution clauses• Co-investment rights
  18. 18. Strategy for Entrepreneur• SBIRs, STTRs, ATPs• State & local grants• Grateful patients• Less-dilutive financing – Angel rounds – Smaller A-rounds
  19. 19. Revenue • Cheapest form of capital • Bargain for early revenue – Push the business plan toward revenue – Reward good management – Avoid long development – Require milestones – Reward advances (stock options)19
  20. 20. Managing for Early Exits• A large round without clear milestones can lead to a very difficult second round negotiation• Encourage quarterly mile-stones• No one knows when the IPO market will restart• Encourage company to have strategic partners• An acquisition often is consummated with immediately tradable paper or cash20
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