Open-source drug discovery. Personalised medicine. Sustainable alternatives to jet fuel.
These are all examples of a new generation of biotech companies emerging in Europe at the intersection of life sciences and software. They’re attracting VC interest from domestic and international investors — and spurring the creation of specialised funds.
According to Dealroom, VCs have put nearly $18bn into European biotech startups since the start of 2020, roughly the same amount that they invested in the six years prior. It marks a reversal of a trend that started in the early 2000s when the sector became the remit of specific biotech funds, which were mostly investing in companies developing a “single asset” like a drug.
In contrast, the biotech companies that VCs are interested in today are building platforms or infrastructure — think tech to improve drug discovery, better diagnose diseases or design new foods. It’s why some investors prefer the terms “Bio 2.0” or “techbio”. Some well-known examples include drug discovery company Recursion in the US and neural interface hardware startup CTRL-Labs, acquired by Meta in 2019.
“In techbio, things move a lot faster as the companies apply engineering to proven fundamental science,” says Pablo Lubroth, an investor at Hummingbird Ventures, which has invested globally in biotech since 2019. “That's why teams can start with an idea because they don't need 10 years to discover and develop CRISPR-Cas9.”
And then there’s the pandemic effect.
“There are so many problems related to biotech, [but] the visibility of the problem has never been bigger,” says Filip Dames, founding partner at Cherry Ventures.
What changed to enable the rise of tech bio?
So how have we got here? Investors say advances in machine learning, automation and engineering have made it possible for founders to create biology-based businesses with the same scalable potential as software.
“What’s changed for me is that biology is no longer trial and error — we now use biology as a technology,” says Selvedge Venture founding partner Alasdair Thong. The VC firm, which closed its first fund in 2021, invests in companies solving age-related medical conditions.
What does that look like in practice? There are businesses like Automata, a UK-based company that’s raised almost $60m from investors including Hummingbird and Octopus Ventures to build infrastructure to help innovation happen faster. Or there’s Shellworks, creating new materials to replace plastics with many different uses.
Scaling these companies comes with a unique set of challenges, however. They need to hire specific technical and commercial talent and face a different set of risks when scaling. And VC firms need the same kind of technical talent — which means hiring more PhDs and investors with research backgrounds.
Biology is no longer trial and error — we now use biology as a technology
But VCs say that the strength of Europe’s research institutions provides a good pipeline of specialist talent and ideas to fuel successful companies. (Though there's been criticism of the university spinout system itself.)
Andrew Williamson, managing partner of Cambridge Innovation Capital, says the interdisciplinary nature of universities is key in creating innovative companies which meld biotech with other sectors.
“Sitting here in Cambridge, where we’ve got thriving computer sciences, engineering and mathematics departments and a huge biomedical campus and medical departments, professors naturally just collaborate and share ideas,” he says.
CIC’s portfolio companies include gene therapy company Gyroscope Therapeutics and digital health group Congenica, which focuses on genomic data interpretation.
But in another sign that Europe’s biotech ecosystem is maturing, VCs also say there are more biotech companies emerging from non-university backgrounds.
A bit less than half of the portfolio companies at seed-stage health and biotech firm Amino Collective are university spinouts, estimates founding partner Manuel Grossmann.
“What I think is exciting is that we’re seeing a number of people leaving very successful healthcare and life science companies and founding their own companies,” he says. “We have one ex-engineer from [healthtech] Babylon Health. We are right now investing in a team led by a former employee of [DNA and RNA sequencing company] Oxford Nanopore. We have an entrepreneur who has sold a company before to an American diagnostics company.”
International investor interest in European biotech grows
One of the major stories in European VC over the past two years has been a surge in interest from non-European firms in European startups. Biotech has been no exception.
US investors contributed 38% of the capital that went to European-founded or headquartered biotech startups in 2021, versus a quarter the year previous, according to Dealroom.
Earlier this year, US private equity behemoth Apollo took a minority stake in Sofinnova, a VC that invests in biotech and life sciences companies, and said it would commit up to €1bn to Sofinnova’s funds (which include Europe’s largest early-stage healthcare fund). Emirati sovereign wealth fund Mubadala agreed last year to invest £800m into UK life sciences companies.
“As valuations have gone through the roof over the last couple of years, we’ve found a lot more opportunity and sensible valuations in Europe, compared to the US,” says George Petrocheilos, managing partner of US-headquartered biotech investor Catalio Capital Management, which opened a London office earlier this year.
We are a seed fund and there is no lack of funding at the moment
Catalio is an investor in Berlin’s mental health treatment developer ATAI Life Sciences and co-led French DNA synthesis startup DNA Script’s Series C with Coatue last year.
Investors that previously focused on other areas, such as deeptech or software, like California’s DCVC and Hong Kong’s Horizon Ventures respectively, have also started investing more in biotech startups in recent years.
CIC’s Williamson, who is also the chair of the venture capital committee at the British Private Equity & Venture Capital Association, said he’s also seeing more investors who were historically from the tech world making life science investments.
What’s next for tech bio in Europe?
Despite more capital going into European biotech and excitement about the kinds of companies being founded, investors say the industry can’t ignore the rout in publicly listed biotech companies. The SPDR S&P Biotech exchange-traded fund, a key biotech index, is down roughly a quarter this year.
That’s not great for later-stage companies closer to a public listing, but Geoffroy de Ribains, a partner at seed-stage French life sciences fund AdBio, says that things are bright for the “companies being created today.”
“We are a seed fund and there is no lack of funding at the moment” — from VCs, academia or the government — he says. “For the couple of years to come, there will be these early-stage stories.”