2000s: The Decade When Life Science Venture Funds Outperformed High Tech

Life science investing is “treated like an ugly stepchild relative to its ‘high tech’ sisters,” begins a 2011 article by Bruce Booth and Bijan Salehizadeh published in Nature Biotechnology. But with copious data, they go on to systematically bust the myths that lead to that sour attitude.

Perhaps the biggest factor driving the misconception is the wild success of venture investments in the high tech sector (hardware, electronics, IT, software, and media) in the 1990s. For instance, the gross IRR of VC investments in the IT subsector was a staggering 93 percent! High tech, therefore, gained and maintains the reputation of creating billionaires. The reality, however, is far different. In the 2000s, high tech investments came back to Earth. Instead, venture investments in the life sciences (pharmaceuticals, biotech, and medical devices) outperformed high tech. Furthermore, in the 2000s, high tech investments were riskier because they were much more likely to fail (i.e., produce a 1x return or less) than life science investments.

For sports fans, the authors conclude with a pithy baseball analogy: “Life sciences has a higher batting average but lower home-run percentage than technology.”

Sports fan or not, the article is worth reading in its entirety. It will serve as an effective antidote to any lingering doubts about the viability of life science investment.