Life Sciences Dominate Venture Capital Investment
March 29, 2004

By Ketaki Sood, Larta Research Economist

Southern California has been a hub of life science innovation, fostering academic institutions, R&D centers, companies and technologies that have grown to become a significant force in the region's economy. As a result, venture capital dollars are fast finding their way into the life science sector in the region. Biotechnology, followed by medical devices and equipment, captured the top two spots among all sectors in Southern California, in both the amount and number of venture capital investments in 2003.

In 2003, biotechnology captured $395 million, or 23.4% of venture capital investment in Southern California, beating out software, media and entertainment, and telecommunications, all of which dominated venture capital investment in the region during the height of the dot com bubble. Biotechnology's share of Southern California's venture capital investment has been growing steadily since 1999. Medical devices and equipment followed biotechnology in 2003, with $217 million invested in the sector in Southern California. Software came in third, recording $206 million in venture capital investment.

Sectoral Focus of Venture Investing in Southern California, 1998-2003
(in $ Millions)

Source: PwC/VE/NVCA MoneyTree data aggregated by Larta
Copyright 2004 by Larta Institute

Orange County is home to the largest number of medical device companies in the world. It is therefore no surprise that Orange County captured the largest amount ($155 million) and number (14) of venture capital investment in medical devices and equipment in 2003. Interestingly, Orange County has emerged as a leader in venture capital investment in medical devices and equipment only since 2001, before which San Diego held the top spot with respect to venture capital investment in the field. San Diego has, however, flourished as a biotechnology hot spot, as a result of which the largest proportion of venture capital investment (36 investments amounting to $307 million) in the sector, were allocated to the region in 2003."For Southern California, investing in the life sciences is a perfect fit given the fact that we have a biotech center right in our backyard," comments Thomas Gephart, Founder and Managing Partner of Ventana Capital Management.

Although Southern California has emerged as a life science hub, it still trails other regions in venture capital investment in the sector. Comparing life science investment in Southern California to other venture capital dominated regions, it is observed that in 2003, Southern California trailed Massachusetts, the New York metropolitan area and Silicon Valley in the amount of venture capital invested in the life sciences. This is a sharp contrast from earlier years (1998-2002), when Southern California stood second only to Silicon Valley in the amount of venture capital invested in the life sciences.

The life sciences will, however, continue to capture venture capital dollars in Southern California, says Brad Jones, Founding Partner of Redpoint Ventures. "The healthcare area is a very promising area for investment; both devices and biotechnology. The sequencing of the human genome will provide additional opportunities in healthcare. In many ways, the way we treat disease in the U.S is still backward. We do a lot of cutting via surgery and poisoning via chemotherapy. In the not too distant future, I expect that we will have more elegant ways of treating disease with not as much negative impact on the patient, and although this will take time, it will create a lot of investment opportunities in the life sciences."

The Venture Forum showcases biotechnology companies in Southern California

Go to Biotechnology section of Larta Institute's Research Archives

Go to California/Regional Economy section of Larta Institute's Research Archives

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