PANEL: Life sciences will see radically different future

May 17, 2013

      WALL:  I'd like to start out that life

                   science in Indiana has a lot of successes they can

                   claim.  There was a study in 2012 by Bio that ranked

                   Indiana in the top 5 in just pretty much every

                   category for life sciences and yet the state kind of

                   continues to struggle, I guess, at attracting venture

                   capital, private investments early on when you

                   compare Indiana to even just its surrounding states,

                   which aren't necessarily the nation's leaders in life

                   sciences.  We often lag.  I would just like to

                   understand why is that happening, why do you think

                   that's happening?  I'll start with the current

                   venture capitalist on the panel, Matt, can you answer

                   that one?

                           NEFF:  Well, while Indiana has a very high

                   concentration of large companies, our development of

                   small startup life cycle companies is still nascent

                   in the sense that we haven't had a lot of exits yet

                   and that's, frankly, what drives the venture capital

                   business.  Just as an alternative, if you look at the

                   tech marketplace and you check out all of the

                   companies that have been successful in Indiana in

                   technology, many of them, the entrepreneurs that run

                   them, can trace their roots back to Software Artistry

                   and that was a big success, an early success, and

                   that spawned a lot of entrepreneurs who then went out

                   and started a bunch of other technology companies.

                   We have a lot of intellectual property, we have a

                   developing group of entrepreneurs and a relatively

                   healthy flow of new companies that are being created,

                   but what we haven't seen yet are a tremendous number

                   of exits that fuel that family tree being developed.

                   Fortunately, Dr. Low and his colleagues at Endocyte

                   are making great progress in that regard and there

                   are other examples, but I think what we need to see

                   is more of that.  The venture capital business, as I

                   said earlier, it all relates back to exits, that's

                   the payoff that investors require in order to make

                   investments in venture capital funds.  The exit

                   marketplace in the last five years has been

                   significantly depressed, you know, we had a financial

                   crisis, we have a tremendous amount of policy

                   uncertainty in terms of tax policy, regulatory

                   policy, administrative policy at the FDA, those

                   things have all created a drag on exits, and if you

                   look at the venture capital industry today, there are

                   large venture capital funds that are raising more

                   amounts of money than they did in 2009 but there are

                   a smaller number of venture capital funds that are

                   doing that and the industry is consolidating and

                   what's driving that is the lack of exits.  There are

                   a lot of smaller, younger venture capital funds that

                   were created in the early 2000s and mid 2000s that

                   are still waiting for exits and they cannot get

                   themselves funded for a second fund which impacts the

                   investment going forward.

                           WALL:  Well, that's helpful.  Who else has

                   some thoughts on this?  Brian Williams.

                           WILLIAMS:  I'd probably say part of our

                   challenge in Indiana is that there is a finite amount

                   of venture capital and I think the Money Tree Report

                   that PWC issues every quarter reflects these trends

                   that Matt was articulating.  I think the challenge

                   we've had here in Indiana is we do have a finite

                   amount of capital and those bets that we can make we

                   should be making more to find successes out of them,

                   I think more dollars going into the seed and early

                   stage, which is the most difficult funding period.  I

                   know the other brilliant "Brian" on the panel runs

                   one of those seed funds but it's, relatively

                   speaking, very, very small, and so the few dollars

                   that we do have to seed entrepreneurs should go into

                   that seed and early stage, we should put more dollars

                   into seed and early stage, which means a fundamental

                   shift in how we think about risk in Indiana and what

           the game is when it comes to venture capital.  The

                   game is you're going to lose a lot of bets and you've

                   got to be comfortable with that whether you're an

                   individual investor or an institutional investor, and

                   when we're ready to make that transition and put more

                   dollars, ten times the amount of money that Brian has

                   at his disposal today, then we'll be in a position to

                   start to compete more effectively nationally for

                   successes.  Matt's right, we had one success with

                   Software Artistry that spurred multiple software

                   companies.  Dr. Low has had one success at Endocyte.

                   We need more than one success, and so for those

                   public-private partnerships that are out there and

                   those efforts that are out there, we should focus

                   more and more of our dollars on seed and early stage

                   because it's short everywhere in the country.

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