If you are in the biotech venture capital business, it’s been difficult to avoid conversations about the increasing sizes of Series A financing rounds. We’ve been hearing and reading about a revival of biotech financing, including “Biotech Financing: darkest before the dawn” (Nature Biotech, 42, 1331–1338, 2024), with 2024 seeming to be one of the best years in the post-covid era (2020-2021) with mega-rounds aplenty.
Are ‘mega-A-rounds’ the new norm, or are we generalizing based on newsworthy sensation rounds? As we’ve posted previously, our analysis of M&As indicates that the best multiples are achieved within the first EUR 50M invested (https://lnkd.in/dirs342n), and this is the playing field we try to be in as a mid-sized European VC. In a world of inflating financing rounds, this could leave us in quite a predicament!
We’ve therefore taken a closer look at the number and sizes of A rounds over the last 10 years (2014-ultimo August 2024). It becomes immediately apparent that while the average Series A in Europe indeed is substantially larger than in 2020-2021, it is actually lower than 2023, which appears to have been the year of large rounds in Europe (also when correcting for inflation). Across the pond, however, 2024 in the US is indeed looking to be an exceptional year, with Series A rounds approximately double that of 2023. But, if you look closer, there was a deployment spree in the first few months, with for example Areteia Therapeutics and Mirador Therapeutics raise >EUR 350M, then normalizing to 2023 levels since May. No such trend in Europe. All seems to indicate that the sensational headliners were driving a generalized narrative of a gear shift in the size of A-rounds.
Still… rounds have been steadily increasing across geographies, and it likely reflects an increased attention to the quality the first clinical value infliction points – and the opportunity to catalyze an early M&A within the A-round budget. But it is still very achievable within the first EUR 50M and at Sunstone we continue to pay specific attention to the first EUR 50M deployed in any biotech investment.
Feel free to share your thoughts! Are the US mega-A-rounds the signs of a series A gear-shift – or is it just a blip in the history of biotech financing?