When you look at the investment capital deployed toward Biotech start-ups in Boston and San Francisco, you might wonder what these two cities are doing to capture nearly half the invested venture capital available in 2013, while other cities lag far behind. We note that according to the National Venture Capital Association and Thomson Reuter’s research, these two cities captured 47 % of all invested biotech capital, and also led in the number of deals financed.
San Francisco edged out Boston in total invested capital in 2013, $1.15 Billion to $933 million, however Boston led in the previous two years. The two cities have battled back and forth for the top spot in recent years, and if you are one of the other 15 cities cited in the NVCA report, you’ve got a high mountain to climb to challenge these top contenders. San Diego comes in third with $387 million invested capital and the slide south is pretty steep from there. Washington, D.C, comes in fourth with all its federal life science grants, followed by Oakland California. It’s very revealing to learn that three of the top five cities are in California. While New York City comes in a distant seventh.
It isn’t just invested capital that makes the top two cities dominant in biotech; it’s their triple play, a confluence of human capital, infrastructure and financial capital which is responsible for the powerful dominance of Boston and San Francisco.
Let’s start with human capital. What essential human capital is needed to grow the biotech community? Clearly you need a deep bench in scientific research. Looking at New York because I know it best, I find that there is plenty of driving power here. With nine major research universities and two of the top three universities receiving federal research grants, it’s pretty clear that New York has the intellectual capital to drive deep science. New York University and Columbia are both at the top of their game, and as evidenced by their licensing revenue from commercialization, continue to rank in the top five year after year. Other cities like San Diego and Washington, D.C. can also boast of similar intellectual prowess.
Infrastructure is equally important. Does the city have affordable labs and other facilities for biotech research? The incubators that serve the technology start-ups aren’t adequate for biotech companies. They need labs able to protect from contamination and able to dispose of any toxic materials properly. This is an area where many cities come up short.
An indication of this can be found in New York. While the Alexandria Corporation opened its facility on the lower east side of Manhattan near the [entity display=”New York University” type=”organization” subtype=”college” active=”false” key=”new-york-university” natural_id=”fred/college/172″]New York University[/entity] research facilities, it is focused on more mature companies and not a magnet for early stage biotech innovation. More startups are need. The city recognized this only recently by opening the first Biotech incubator in Harlem. The Harlem Biospace was founded as recently as November 2013 by Christine Kovich and Sam Sia as a lab for his start-up, Junco Labs. After searching around for space near Columbia University where Sam is based and finding none adequate for their needs, they decided to build a space not only for themselves, but for an additional 24 companies. There are already 16 companies occupying the space and more are coming.
According to Christine, a diverse community is an added feature to the co-working space at Biospace. She told the NYC Economic Development Corporation that “entrepreneurs learn much from others when operating at the same level of development in a common workspace.” In reality, if you are lining up the available infrastructure space city to city, there is no denying that New York is significantly lacking in affordable lab space. In contrast, Boston boasts one million square feet of biotech labs in the Kendall Square area alone.
What is not accounted for in the Venture Capital tally of who leads in invested capital is that corporations provide not only financial capital, but also human capital. For example, the metropolitan New York area is rich in healthcare headquarters and operating hospitals. There is continuous feedback to early stage drug, diagnostic and device companies, who may contract with them in commercial business relationships as well.
In addition, The Partnership for New York City has a Digital Health accelerator program in place with 33 hospitals in the area to incubate start-up companies. Analytics are an important part of the program, too. What is the value of programs like these to entrepreneurs? For entrepreneurs, the access and experience is priceless.
All three factors ought to be considered when looking at the next vibrant market for biotech investment. Human capital, infrastructure and financial capital and their dynamic interrelationships are key requirements. However, with the dominance of San Francisco and Boston in this area, these cities are likely to continue to attract much of the biotech talent from other cities such as Washington, D.C., Seattle and Houston as they do from New York until all three factors begin to align.
There is one other important factor on which both Boston and San Francisco excel, and that is a vibrant entrepreneurial talent pool. We cannot underestimate the value of serial entrepreneurs either, as they bring an abundance of experience on just how to get things done. According to Nathan Tinker, Executive Director of New York BIO, the City is replete with skilled workers in the biotech industry, 79,000 at last count. But what is lacking, according to him, are the serial entrepreneurs who are essential to building a large and robust biotech community. This is an experience level that no one else can replace.
So what are other cities to do in order to build their own robust biotech industries? They need to attract all the needed talent, especially the serial entrepreneurial talent which brings legitimacy to the market. This may be the essential component of human capital and may be the hardest to find. All three factors contribute to building out a top performing biotech community, one of quality and not just size.