Capital Sources

Biotech hotbed likely to lure venture capital

By: Wayne Tompkins

August 27, 2008

The construction under way on Scripps Florida's 350,000-square-foot, three-building complex at Florida Atlantic University's Jupiter campus is just one sign the northern Palm Beach County city could soon become a national hotbed for investment in biotechnology and spin-off businesses.

Along with the Scripps Research Institute, the biomedical giant that's already in temporary facilities on the FAU site, the prestigious Max Planck Society of Germany plans to build a nearby 100,000-square-foot, bio-imaging complex.

While neither entity will help northern Palm Beach County to eclipse Silicon Valley, the thought of what these two biotech operations could attract to the region has encouraged venture capitalists and angel investors.

"It's really going to be exciting here as time moves on with all of these spin-off opportunities that will be coming out of these premier institutions," said Ravi Ugale, a partner in West Palm Beach venture capital firm CrossBow Ventures. "These are all good catalysts for angel and venture funding. Scripps has already had a few spin-offs, but a consistent pipeline is going to take a few years."

Underscoring the buzz, the Angel Investment Forum of Florida recently relocated to Jupiter from Martin County to take advantage of the region's potential.

"We decided to move for a number of reasons," said Nick Robbins, an attorney with Gunster Yoakley & Stewart in West Palm Beach and recently named chair of the nonprofit forum.

The first reason, obviously, is that it puts the forum in the shadow of Scripps and Max Planck but more importantly lines them up with entrepreneurs looking to cash in on the opportunities the two facilities will spawn.

"We're a forum where companies can present, who are raising money or who just want to talk about their company," said Robbins, a member of Gunster's technology and emerging companies practice group who has completed more than $200 million in venture capital transactions.

"It's a place where angel investors can come and learn more about companies in the marketplace, just as a way for people to get together and exchange ideas and learn about companies that are in the process of being financed."

Angel investors generally look to invest between $50,000 and $2 million in emerging companies, serving as a crucial bridge between start-up capital raised from family members, grants and credit cards and institutional investors looking to put up $3 million or more.

"For angel investors, the difficulty is, look at the public markets. If you're a private angel investor, it's very hard to figure out where all the opportunities are," Robbins said. "You've got to turn a lot of stones over."

Angels are investing their own money, and doing it locally, he said.

"Part of the process is that they want to be involved in the company," Robbins said. "There's sort of a psychic return for a lot of angels. They're helping to grow this company. If you're living in Florida, it's very difficult to be an angel investor at a company in Utah. Generally they want to be within 200 miles, a two-hour drive, something so you can visit the company on a regular basis."

That gives angel investors a crucial role in building the "ecosystem" of economies such as northern Palm Beach County's.

One of the angel investor's final duties is to introduce the company to the big leagues of venture capital.

"They're helping source that deal upstream ... developing a cohesive community of emerging technology companies," Robbins said. "And Palm Beach County is very lucky. Based on ZIP codes, it has some of the richest individuals, some of the highest concentrations of capital in the U.S. We're just trying to organize the capital in the county."

The timing of the arrival of Scripps and Max Planck coincides with the state's emergence as a hotbed for venture capital investment. Florida cracked the top 10 last year for the first time, ranking among states with the most venture capital invested. The $627 million invested in Florida companies in 2007 was more than double the $300 million invested in 2006.

Those in the field attribute that growth to the state's growing population and wealth, the maturity of its universities and the arrival of experienced entrepreneurs relocating to retire or work.

"It's going to take time, but it's starting to happen. And that's the exciting part," said John Igoe, attorney with Edwards Angell Palmer & Dodge and incoming chairman of the Florida Venture Forum. "In addition to the institutes moving in, we already have in Florida substantial life science experience in our university systems. A number of people have been working on life science projects."

Igoe said that even in the face of such promise, challenges remain for life science companies looking to raise capital.

"Life science companies pose a special challenge, because a number of them may be focused on developing pharmaceuticals or drug discovery," Igoe said. "To get from startup through clinical studies to the point where you might be acquired or you might be manufacturing a drug that's finally approved by the FDA, that can cost hundreds of millions of dollars and take a long time. It's not an arena for the faint of heart or for small angel investor groups.

"If you hit bumps along the road and there are down rounds, the valuation goes down in subsequent rounds of financing, then the people who came in very early are going to be diluted, heavily," he said.

What is needed, Igoe said, is the attention of life science venture funds who do early stage investments. Angel investors such as Robbins' group could find lucrative opportunities "in medical devices or drug delivery or something of that nature," he said.

Along with generating a number of jobs in the life sciences sector, Igoe notes that it will also spawn new opportunities for the legal profession — especially those with life science-focused patent and intellectual property practices.

Other parts of the state also are showing signs of promise: Orlando's Burnham Institute for Medical Research and Port St. Lucie's Torrey Pines Institute for Molecular Studies are institutions with the potential heft to anchor a venture-funded research cluster, such as the one northern Palm Beach County seems on the cusp of achieving.

"You're building an ecosystem," Robbins said. "We have education, the companies and the capital — the three legs of the stool. Now it's just a matter of getting the three legs together."