Where Is All The VC Funding Going?
San Diego had a record-breaking $594 million in venture capital investment in the first quarter, and most of it went to life science companies.
San Diego had record-breaking venture capital investment in the first quarter of 2018, with $594 million in VC funding flooding into the market, according to new research from CBRE. The majority of the capital—$400 million—went to life science companies, positioning San Diego as a major hub for the life science market. During the quarter, there were a total of 23 transactions with Silvergate Capital Corporation nabbing the largest deal, receiving $114 million. In life science alone, Biotech / pharmaceutical received the most funding at $335.9 million. To find out more about what is driving this investment activity and how it is impacting the commercial real estate market, we sat down with Bill Bacon, EVP at CBRE, for an exclusive interview.
GlobeSt.com: The San Diego market saw record-breaking VC spending in the first quarter. What is driving all of this investment activity in the San Diego market?
Bill Bacon: I would say that it is a continued increase in the formation of new companies and the growth of early stage companies in San Diego. Life science was the leader, and there are really three things driving that industry. First, big pharma continues to have an appetite and a growing appetite for innovative new drugs and breakthroughs to fill their pipeline, and they have learned that they are enjoying great success in looking to the early-stage company part of the economy for these new drugs and breakthroughs. Big pharma has tremendous capital and can spend an unbelievable amount of money funding these early stage companies. The second factor, I believe, is the genomics revolution that is happening in San Diego. San Diego is the genomics capital of the world, and there is tremendous activity in the genomics arena, and there are a lot of creative ideas about how to use genomic creation in the 21st century. There is a great interest in funding those companies. The third thing is the increase in focus by our research institutes by licensing our discoveries. Whether it is Scripps Research Institute or USD, they both have a very big focus on expanding their licensing activities and efforts. That is leading to more early-stage companies being formed to license discover out of those institutes and others, and thus venture capital is focused on that licensing priority and the companies that are being formed as a result. I really think that those are the three things that are driving an increase in venture capital and M&A activity here is San Diego.
GlobeSt.com: While overall venture capital investment was up for the quarter, tech investment slowed. What does it mean for the market that so much of the capital is going to life science industries?
Bacon: Genomics is categorized as life science, but a lot of these companies are actually making technology. I’ll use Edico as an example. Their product is a chip, and they are arguably a tech company as much as a life science company. They are in the life science space, but they are really a software and technology company. I think that a part of what is going on here is the need to sort out the genomics revolution and the companies that are getting involved in it and whether it is really right to classify them as life science.
GlobeSt.com: How has this activity impacted the commercial real estate market?
Bacon: Because of genomics, there has been a shift and growing demand for non-laboratory space, which is largely office space. Life science companies are continuing to absorb a certain amount of traditional laboratory space, but they also have increasing demand for more typical office space. Although we in San Diego think that rents are getting higher than what people are comfortable with, the next California market with the highest concentration of biotech and genomics is South San Francisco, and the rents in South San Francisco are dramatically higher than San Diego. That clearly has not affected the growth and formation of biotech and life science in San Francisco.
GlobeSt.com: This was a record quarter. Do you think San Diego is on-track to have a record-breaking year?
Bacon: Yes, I think that this will be a record year for VC funding for San Diego. I really think that this will be a record year, and I believe that the capital will continue to focus on life science companies.