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Investors dissect local biotech funding market

Updated: February 10, 2011 1:23PM



While Groupon is putting Chicago’s emerging Internet industry on the map, the local biotech community is still in a sort of embryonic stage.

Illinois-based health care companies raised a combined $161 million in 2010, led by Chicago-based Neurotherapeutics Pharma ($43 million) and Schaumburg-based Sagent Pharmaceuticals ($40). Overall, venture investing in biotech startups in the Midwest declined 5 percent to $737 million last year (with Illinois leading the way).

More startup capital is needed to breathe new life into life sciences. Early-stage biotech companies generally require more capital than Internet and software companies to break even or reach a positive exit via an acquisition or IPO. As is the case in other sectors, success can be contagious.

“We need some success stories to bring attention,” said Caralynn Nowinski-Chenoweth, a vice president at Chicago-based Sikich Investment banking who targets healthcare companies in the early stage of clinical development.

Promoting local success stories and bringing together stakeholders in the local biotech community will be a focus of the 2011 iBio IndEx Conference, which will be held at the Hyatt Regency Chicago Feb. 15-16. Nowinski-Chenoweth, who will participate in a panel that will forecast Midwest venture capital trends in 2011, says companies are still finding ways to plow ahead despite the lack of funding.

“There are more opportunities to get through initial milestones with the right management team and company formation today than existed five years ago,” she said.

Kathryn Hyer, the Director of Life Sciences at Chicago-based Illinois Ventures who has invested in local biotech startups for nearly a decade, concurs that area entrepreneurs “are much more tuned in to what it might take” to be successful.

The local startups that she works with, which typically commercialize technology developed at regional universities, will need to persevere through the current “realignment” in the venture industry.

“Although the quality of ideas is better, she said, “it’s now even harder to exit.”

OkCupid founder has more reasons to spread the love after $50 million sale

When Sam Yagan isn’t investing time helping young tech companies in Chicago raise money through the Excelerate Labs program, he is running the New York-based matchmaking site OKCupid.com.

Yagan’s primary love, OKCupid, earlier this month was acquired by InterActiveCorp’s Match.com for $50 million in cash. The Bourbonnais native, who shuttled between New York and Chicago over the last year, co-founded OKCupid in 2005. The advertising supported service, which is free to join, raised a total of $6 million prior to acquisition. Yagan will remain with OKCupid after the acquisition.

Applications to join the 2011 class of Excelerate Labs are open until March 18. The 10 participating companies will receive up to $20,000 in funding, mentoring from leading investors, and exposure at the annual Demo Day in exchange for six percent of equity.

Day-to-day duties for running Excelerate were handed off to local serial entrepreneur Troy Henikoff. Henikoff is a founder of Glenview-based SurePayroll, which was acquired late last year by Paychex for $115 million. Yagan says he will “hang out” with Excelerate companies as much as possible this year.

I hope (the Match.com acquisition) just adds me to the pool of entrepreneurs based in Chicago who can provide mentorship and investment to Chicago startups,” he said. “The entire premise of Excelerate was that Chicago HAS the network of successful, talented entrepreneurs and investors to help young companies succeed.”

More information about the program can be found at www.exceleratelabs.com.



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