The Spatial Clustering of Science and Capital: Accounting for Biotech Firm-Venture Capital Relationships

Abstract

This paper focuses on the spatial concentration of two essential factors of production in the commercial field of biotechnology: ideas and money. The location of both research-intensive biotech firms and the venture capital firms that fund biotech is highly clustered in a handful of key U.S. regions. The commercialization of a new medicine and the financing of a high-risk startup firm are both activities that have an identifiable timeline, and often involve collaboration with multiple participants. The importance of tacit knowledge, face-to-face contact, and the ability to learn and manage across multiple projects are critical reasons for the continuing importance of geographic propinquity in biotech. Over the period 1988-99, more than half of the U.S. biotech firms received locally-based venture funding. Those firms receiving non-local support were older, larger, and had moved research projects further along the commercialization process. Similarly, as VC firms grow older and bigger, they invest in more non-local firms. But these patterns have a strong regional basis, with notable differences between Boston, New York, and West Coast money. Biotechnology is unusual in its dual dependence on basic science and venture financing; other fields in which product development is not as dependent on the underlying science may have different spatial patterns.

Community development venture capital: concept and status quo in Germany

“…This hypothesized importance of spatial proximity has been supported by different international empirical studies, arguing that VC companies predominantly invest in nearby targets (Powell et al, 2002;Sorenson and Stuart, 2001;Cumming and Johan, 2006).…”

The role of venture capitalists in the regional innovation ecosystem: a comparison of networking patterns between private and publicly backed venture capital funds

“…The role of venture capitalists in the regional innovation… network is also more readily tapped into when firms are geographically proximate (Powell et al 2002).…”

“…Previous work by Powell et al (2002) examine the spatial concentration of ideas and money in the biotech sector and found that both research-intensive biotech firms and venture capital firms that fund biotech are highly clustered in a handful of key US regions. They also argue that the importance of tacit knowledge, face-to-face contact and the ability to learn and manage across multiple projects are critical reasons for the continuing importance of geographic propinquity in biotech.…”

“…Access to reliable information about new opportunities occurs through personal and professional networks, and these ties are critical in reducing uncertainty about projects that are not well understood by non-experts, exceedingly risky in terms of their payoff and unclear in terms of their eventual market impact (Powell et al 2002). In the venture capital market some venture capitalists presumably have betterquality relationships and enjoy more influential network positions than others, implying differences in clout, investment opportunity sets and access to information (Hochberg et al 2007).…”

‘The Biosciences Knowledge Value Chain and Comparative Incubation Models’

“…• In relation to exploitation-equity-based syndication conducted by investors may be mobilised by incubator management, strategic partnering, joint ventures of a technological nature and connections to consultants, specialist lawyers and IPR advisers and management accountants for business ''engineering'' will be supplied in-house or through the social capital networks that accrue to bioincubators and constitutes their key management resource of value along with the capability to supply appropriate ''wet lab'' space. Relationships with markets are especially important in assisting firms to find expert commercial partners (Norton, 2000;Zook, 2000;Cooke, 2002a,b); Powell et al, 2002). In Section 3 efforts will be made to characterise the eight bioincubators in the Bio-Link study according to the range of services they supply and the direct and indirect nature of those services.…”