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30 July 2003
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Venture funds for SA biotech sector limited
Investment capital for biotech companies in South Africa is limited but the situation is improving, a recent debate on the industry concluded.

Compared with other countries South African investors are risk averse when it comes to biotech companies and venture capitalists prefer to invest in undertakings with a pipeline of products or projects – single product companies have a greater probability of failure.

These were some of the messages discussed by venture capital specialists at an AfricaBio convergence business breakfast in Centurion. AfricaBio, a non-profit organisation of stakeholders in biotechnology, hosted the breakfast.

Justin J Devine, CEO of Synexa Life Sciences, said currently there was only one true biotech venture capital fund in South Africa and no formal angel investors’ network existed.

Devine emphasised that the promotion of a biotechnology undertaking began with the entrepreneur.

“The creation of a successful biotech company is driven by the passion of the entrepreneur and the planned convergence of a world-class team together with a product or service that holds a sustainable competitive advantage.

In the right combination, these factors will attract the necessary funding at the right time. “A high quality, balanced and complementary management team is imperative to build a business; not only technologists or scientists but also persons with experience of capital markets and the sale of technology based products.

Quality management is always one of the most important factors why venture capitalists invest”.

Devine emphasised the need for a well-managed intellectual property portfolio, to help build sustainable competitive advantage, and planned stages to bring an undertaking to maturity.

“It is necessary to plan when cash will be required.

All capital is not needed in the first stages. Simultaneously it is necessary to plan when to bring the right people on board – recruitment takes time,” Devine said.

Heather Sherwin, Fund Manager of Bioventures, concurred with Devine and said the first thing venture capitalists looked for were “good investments”.

“This is not necessarily the same as a good business.

A business may not be doing well and a venture capitalist may buy a stake and turn the business around.

One of the keys in a good investment is the ability for the VC to exit an investment.

Therefore a great company doing very well but which cannot be exited is not a good investment,” she said.
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