San Diego Business Journal

Biotech and life science companies led San Diego’s top venture capital rounds last quarter, furthering the region’s reputation as a biotech hub.

VelosBio, a company developing targeted therapies across a broad range of cancers, led the pack with a $137 million funding round backed by Matrix Capital Management and Surveyor Capital.

Precision oncology company, Kinnate Bio and software unicorn Seismic followed close behind, raising more than $90 million for its Series C and Series F funding rounds.

Local companies raised a total of $933 million in the quarter, down slightly from $1 billion raised during the same period last year raised by 73 startups, according to the PitchBook-National Venture Capital Association Venture Monitor report.

Biotech Dominated

Biotech and life sciences startups made up 68 percent of the companies that received funding and 80 percent of the dollars raised.

Only a few local tech companies raised money from investors this quarter including consumer technology firm Ostendo Technologies, which raised $19 million coinciding with its launch of new display technology for augmented reality glasses.

Another software company GoSite, a company that builds modern online products for small businesses, raised $16 million Series A round after seeing record growth during the global pandemic.

“This quarter we saw some significant investments from local funds, which is fantastic to see in growth,” said Neal Bloom CEO of Rising Tide Partners. “GoSite had at least four local investors in it. Cue Health is doing extremely well and has funding from Section32, Cardea Bio took in money from local tech investor Serra Ventures, RightDevice also had local money. All really good signs.”

For new startup technology firms, early stage funding still remains the most difficult to come by, only eight local tech startups received early stage funding in the quarter.

In part, this is due to many venture capital firms being more focused on companies that are already in their portfolios.

“Q3 was ridiculously light on the tech side of things,” said Mike Krenn, president and CEO of Connect w/ San Diego Venture Group. “I’d say we’re lucky that we’ve got a strong life sciences sector. That’s where I think like other cities like Austin, Los Angeles and Seattle might not fare as well compared to San Diego just because we’re so broad.”

Strong Biotech Community

While biotech and pharmaceutical startups have favored fairly well, other sectors including fintech, ed-tech and telemedicine firms also have been able to raise capital.

“The amount of venture capital that we attract into San Diego is enormous, given the fact that we have very few major venture capital firms that are headquartered here,” said Joe Panetta, president and CEO of Biocom. “A lot of folks place their bets on San Diego because of the fact that it has the technology and number of experienced serial entrepreneurs. This goes back to the fact that we’ve been here as a biotech community for 40 years plus.”

In total, six companies in San Diego have gone public so far this year on U.S. exchanges, all have been life sciences companies. The most recent local IPO is Carlsbad’s Acutus Medical, which is working on treatments for heart arrhythmia.

Panetta also noted that a big contributor to San Diego is the extensive amount of early stage research and technology which comes out of the multiple research and academic institutions in the greater life science arena.

“In San Diego, we’re continually creating wealth of new early stage companies with diverse technologies and diverse talent. It’s spread across therapeutics, diagnostics, research tools, medical devices and industrial biotech facets of the industry,” he said. “There’s a lot to invest in here.”

From the perspective of investors, Krenn said many are finding “renewed enthusiasm” around early stage deals. Although, venture capitalists will remain cautious with their check writing throughout the duration of the pandemic.

“There’s still much trepidation, but VCs are beginning to get their portfolio figured out. They’re still not traveling, but they are more interested in opening up the pipeline and looking at new deal flow,” he said. “They’re still going to be a bit slow to pull the trigger on writing the actual checks, but there seems to be a renewed interest in looking at deals, which I think is good.”

Still on Track

So far this year, 188 San Diego startups have raised $3.4 billion despite the pandemic. That compares with 218 companies raising $2.5 billion for the first three quarters of last year.

Nationwide, venture capital investment has remained resilient despite the pandemic and economic volatility. In all, $37.8 billion in venture capital was invested during the third quarter nationwide, which was on par with the same quarter last year.

“Four years ago, if we would have said we (San Diego) were going to have a $900 million Q3 in the midst of a pandemic — that would have been a huge home run.” said Krenn. “Last year we hit $3.6 billion, I thought if we could get somewhere close to that, before COVID, it would be remarkable. It looks like we’re still on track to hit that, which is kind of nutty.”