No startup sector was entirely immune from 2022’s market uncertainty — except maybe AI — but some proved more resilient than others. Biotech was one of the most fortunate.
The sector recorded 1,054 U.S.-based deals in 2022, worth a collective $30.7 billion, according to PitchBook data. Those figures fell short of the 1,415 biotech deals struck in 2021 worth a total of $39 billion. But the declines were not the worst we found: Biotech showed a more modest year-over-year decline in investment volume (21%) than many other sectors including fintech (37.7%), consumer tech (53%) and enterprise tech (33%).
Comparing any sector’s results to 2021 is slightly specious, as that year was the peak of the last startup boom. Compared to 2020’s more conservative 1,143 biotech deals worth $29.6 billion, last year wrapped up on par.
U.S. biotech deals also set new records in 2022 for both median deal size, $33.5 million, and median valuation, $38 million.
Biotech investors told TechCrunch that while they definitely felt the squeeze of the overall economic conditions last year — and noticed tourist investors shying away from the category, similar to other sectors — many weren’t surprised that the category performed better than some of the other more buzzy industries for a few key reasons.
Unlike other sectors, where business models can range widely, biotech companies largely follow a similar, predictable playbook. Zavain Dar, a co-founder and general partner at Dimension Capital, said that while he expects we’ll see a lot of robust and self-sustaining fintech startups, they have a much more uphill battle to get people to understand their business model than biotech companies do.
“There is an existing proof on how [biotech startups] capture value that’s not just speculation,” Dar said. “These companies will fail if they don’t pass their clinical trials.”
Jorge Conde, a general partner at Andreessen Horowitz focused on biotech, agrees. He added that this structure gives the sector, as a whole, a significantly different risk profile than other categories because customer demand can be more accurately calculated for a biotech’s product than for, say, a DTC consumer startup.
“One of things we joke about is other sectors have to worry about ‘PMF’, product, market, fit, and if you have it you will be successful. In biotech you have to worry about if you have platform, molecules, fit” Conde joked.
The biotech sector may have been more resilient, at least when it came to fundraising last year, thanks to the nature of the problems the industry’s startups are trying to solve. These issues aren’t as tied to broader economic trends as in other industries, Conde said. While a recession, or general economic uncertainty, may delay a consumer from switching their bank to a fintech or changing their spending habits, the economy doesn’t affect the number of people needing a new treatment or therapeutic for a disease or medical ailment.
In that way, health is not cyclical. “The demand for new therapies and disease control, are largely, if not entirely, decoupled from the macro economic climate,” Conde said. “Other [sectors] get affected when consumer spending is down but we still need cures for disease and better care.”
Opportunities for early-stage biotech investing keep improving, and last year was no exception, investors said. “We remain very bullish on biotech investing and believe that being early-stage at this point in time — given fair valuations, nearterm milestones and value inflection points for these new types of drugs being developed — presents very exciting opportunities,” said John Flavin, founder and CEO at Portal Innovations.
Biotech is starting to expand out of its hubs in Boston and San Diego, too, Flavin said. That means more interesting research is getting out of the lab and into the commercial and venture sectors.
All three VCs agreed that the recent technology advancements in the space, including CRISPR, further sets the industry up well for a lot of really innovative startups to come to fruition over the next few years.
“Innovation doesn’t stop,” Conde said. “We continue to see really compelling founders with really compelling technology emerging. That makes me optimistic because what we do at the early stages feeds the future of what happens downstream.”