Life Sciences Venture Capital in San Diego- Pre vs. Post-Pandemic

During the pandemic, a surge of venture capital funding in the life science market resulted in a demand for lab space.

In Q1 of 2021, funding in the life sciences surged up to $1.94 billion.

Following the pandemic, however, venture capital steadied and now enters a state of recovery.

As the market expands, Grant Schoneman, executive managing director of life sciences at JLL, and Taylor DeBerry, senior associate of life sciences at JLL, shared what venture capital variables will impact its long-term trajectory, as well as further insights into pre and post-pandemic funding.

Taylor DeBerry

Q: Could you please explain how the pandemic affected VC funding, and what was it like before?

Grant Schoneman

A: The pandemic sparked a huge influx of VC funding into the life sciences industry. Life sciences companies are out to solve problems related to human health, so the pandemic naturally brought a spotlight to the industry. As a result, a period of heightened attention took hold of the VC world, and life sciences companies collected record amounts of capital.  

Q: How does a flood of capital correlate to the rise in demand for lab spaces?

A: As companies get funded, they need to ramp up their research efforts. In order to ramp up research, companies need to hire employees and purchase the infrastructure/ equipment necessary for research. Hiring and purchasing directly influence the need for lab and office space. Often, the more funding a company receives, the more employees they hire and the more infrastructure they require, resulting in larger space requirements. 

Q: What contributing factors accounted for a noticeable increase ($632 million in Q2 2023 and exceeding $1 billion in Q3 2023) in the last two quarters?

A: There are a couple of factors causing the increase. First, there has been a major misalignment in the valuation of life sciences companies during the last 12-18 months, leaving a major bid-ask spread between companies and potential investors. This has resulted in a difficult dealmaking environment, however, over the last few quarters, we believe that life sciences companies and investors are more aligned on value. Therefore, dealmaking is becoming easier.

Second, is the record amount of dry powder that venture capitalists have been sitting on for the last two years. VC firms raised record amounts of capital from LPs (limited partners) during the low-interest rate (and high-attention) environment of the Covid years. That dry powder often has a deadline for deployment, and we believe we are now seeing that deployment manifest in the market. 

Q: What factors will impact the long-term growth of the sector?

A: Several factors will impact the long-term growth of the sector: policy (IRA, drug price negotiations, patent protections), costs, education and labor, infrastructure, etc, however, technology has probably the greatest potential to impact the sector in a positive way.

Major advances in technology (AI, computing, etc.) could significantly lower costs by making scientific discovery, research, and testing quicker and more efficient. If getting a therapeutic from discovery to clinical trials to commercialization becomes cheaper and quicker, the industry becomes much less risky and much more attractive to investors.