From Genentech to Gene Therapy: The Evolution of Venture Capital and Biotech
Biotechnology is a field that uses living organisms or their products to create or improve products or processes for various applications, such as medicine, agriculture, or industry. Biotechnology has been around for centuries, but it was not until the second half of the 20th century that it became a modern scientific discipline with the advent of molecular biology, genetic engineering, and recombinant DNA technology.
Biotechnology is also a field that requires a lot of capital, expertise, and risk tolerance, as the research and development of new products can take years, involve complex regulatory hurdles, and have uncertain outcomes. This makes biotechnology a challenging sector for traditional sources of funding, such as banks, corporations, or governments. Therefore, biotechnology has been largely driven by venture capital, a form of private equity that provides funding and guidance to start-ups with high growth potential in exchange for equity or ownership.
Venture capital emerged as a distinct asset class in the United States in the 1940s and 1950s, when wealthy individuals and families started to invest in innovative companies, especially in the fields of electronics, computers, and semiconductors. However, venture capital did not enter the biotechnology sector until the 1970s, when a series of scientific breakthroughs and entrepreneurial ventures sparked the birth of the modern biotechnology industry.
One of the key events that catalyzed the venture capital investment in biotechnology was the discovery of restriction enzymes in 1970, which enabled scientists to cut and paste DNA molecules from different sources, creating recombinant DNA. This opened up new possibilities for manipulating genes and creating novel products, such as human insulin, growth hormone, or antibodies.
Another pivotal event was the founding of Genentech, the first biotechnology company, in 1976 by biochemist Herbert Boyer and venture capitalist Robert Swanson. Genentech was the result of a serendipitous meeting between the two, who shared a vision of applying recombinant DNA technology to produce human proteins for therapeutic purposes. Swanson provided $500,000 in seed funding and business acumen, while Boyer provided scientific expertise and access to a laboratory. Genentech soon became a success story, as it developed the first recombinant DNA drug, human insulin, in 1978, and went public in 1980, raising $35 million in one of the most spectacular initial public offerings in history.
Genentech’s success inspired many other scientists and entrepreneurs to start their own biotechnology companies, and also attracted many other venture capitalists to invest in the sector. Some of the early venture capital firms that specialized in biotechnology were Kleiner Perkins, Mayfield Fund, Venrock, and Hambrecht & Quist. These firms provided not only funding, but also mentorship, networking, and strategic advice to the biotech start-ups, helping them overcome the technical, regulatory, and commercial challenges they faced.
Since then, venture capital has been a major driving force behind the growth and innovation of the biotechnology industry, supporting the discovery and development of new drugs, diagnostics, vaccines, and devices that have improved the health and well-being of millions of people around the world. According to PitchBook, venture capital firms invested in more than 3,100 biotech start-ups worldwide in 2021, raising more than $34 billion, more than doubling the 2020 total of $16 billion. Some of the biotech platforms that have received the most venture capital interest in recent years include cell therapy, gene therapy, precision medicine, machine learning, undruggable targets, and new delivery methods.
Venture capital and biotechnology have a symbiotic relationship, as they both seek to create value by pursuing high-risk, high-reward opportunities that can transform industries and society. As biotechnology continues to evolve and expand, venture capital will remain a vital source of funding and support for the biotech entrepreneurs and innovators who are shaping the future of life sciences.
