Funding a struggle for Washington life science startups

Funding sources are drying up for life science startups in Washington State – thanks to some tough new legislation and a challenging venture capital environment.

Life science startups in Washington State are having a tough time raising capital – particularly Series A, the Puget Sound Business Journal reports:

In Washington state, fundraising in this industry is getting harder and harder. Last week, the Legislature killed the Life Sciences Discovery Fund, which helps early-stage companies get past some of the most difficult stages of research and discovery.

The Life Sciences Discovery Fund would have brought $62 million to the Washington State biotech and medical device startups, nonprofits and R&D outfits by 2017. It was established in 2005, with funds the state received from settlements with tobacco companies, the Puget Sound Business Journal says in another article on the matter:

Though it only has six employees and the grants it gives to young companies are small, life science industry leaders in Washington state call LSDF money “high-impact” funding because it helps to get biotech companies over the valley of death — the time between an idea’s conception and bringing the product to market.

In a time when federal funding from the National Institutes of Health is also dwindling, there aren’t a whole lot of places young companies — like Seattle’s M3 Biotechnology, for example — can look for money.

However, the budget change was abrupt: Though the decision to cut funding came in June, it impacts all grants made after July 1 – meaning the current funding cycle was axed.

The current venture capital environment isn’t conducive to funding early stage life science startups, either:

Though venture capital firms focused on life sciences in Washington state are scarce, VCs are now one of the only options companies have to get money. Since VCs are looking for companies that have the potential for a payoff, that could limit the types of companies that grow and succeed in the Puget Sound region.

“We’re really gunning for exits in excess of $200 million, $300 million, $400 million,” said Wende Hutton, a general partner at Menlo Park, California-based Canaan Partners, a venture capital firm focused on health care and technology.

She urged life sciences startups to step back and ask themselves if they have the right business model to attract VCs.

“Having a business that can reach $10 million to $20 million is valuable,” she said, “but that’s more friends and family or angel investors than a series A through a VC.”