Dear reader, biotech investments in the United States face unique challenges, chief among them the issue of "massive capital." This problem arises when large investment funds in this sector struggle to effectively allocate enormous sums of money across a limited number of opportunities. As a result, they are compelled to focus on larger, more established companies, leaving smaller startups overlooked.

When managing billions of dollars in capital, say, $3 billion, large funds face practical constraints on the number of startups they can include in their portfolios. Typically, these funds limit their investments to around 50 companies to ensure each is closely monitored. With this capped number of investments, the average amount allocated per company rises significantly, often reaching $60 million per company.

This mathematical inevitability forces large funds to concentrate on more stable, well-established companies, engaging in what is known as "chasing the big biotech sharks," rather than pursuing smaller, riskier opportunities. Smaller biotech startups, particularly those outside the U.S. with low daily trading volumes, often fall outside the scope of these large investment funds. For instance, investing in a small company in Europe or Australia with daily trading volumes of just $0.5 million becomes neither practical nor appealing for these massive funds.

Large funds may occasionally support smaller startups or IPOs with smaller allocations, such as $30 million, but this presents additional challenges. Firstly, such an investment may result in the fund owning an excessively large stake in the small company, which can complicate the company’s growth and the fund’s future exit strategy. Secondly, selling off this stake later could take months, even under favorable market conditions.

Moreover, resource and efficiency challenges further complicate the situation. Conducting due diligence for a small company requires nearly the same effort and time as for a larger, more established firm. This makes the return on investment (ROI) in terms of time and resources less attractive when comparing small companies to large ones.

From a purely financial perspective, investing $100 million in a U.S. company with a $10 billion valuation is often preferred over a similar investment in a small company. Larger companies’ stability, liquidity, and established market presence reduce risks associated with geography, time zones, currency fluctuations, and operational complexities. While small companies may promise higher returns, the risks and inefficiencies tied to such investments often render them unjustifiable for large funds.

For example, a small company may experience a significant surge in stock value following a major investment. However, for a fund managing billions of dollars, the potential gains may not justify the time and resources required for evaluation, monitoring, and crafting an exit strategy.

The "massive capital" problem highlights a structural imbalance in the biotech investment ecosystem. While large funds play a vital role in driving industry growth, their focus on big players limits funding opportunities for innovative startups. This dynamic can stifle the growth and progress of smaller biotech companies, particularly those operating in niche markets or outside major economic hubs, making it harder for them to secure the capital needed to develop groundbreaking treatments.