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4) Venture Capital52: Private funds that seek to invest into promising companies (in exchange for equity) with the horizon of enabling the company to grow significantly and then selling their share after only a couple of years. In terms of raising capital the US is by far the global leader within Blue Biotechnology, raising around 80% of all the capital, while Europe represents around 15% of the USD 28.2 billion raised in 2012. The financing situation in Europe is presented in Table 3.6. Table 3.6 European Biotechnology financing by year (USD million)53 2002 136 IPOs Follow-on and other Debt Venture Total 2003 36 39 2004 454 24 2005 995 100 2006 279 2007 853 1,021 126 1,769 2,196 1,587 3,141 4,600 63 319 2008 111 2009 143 654 2010 219 396 2011 43 872 1,892 1,792 1,134 108 2012 40 948 393 1,934 1,259 1,064 1,860 1,776 1,872 1,821 1,531 1,091 1,371 1,321 1,243 1,585 2,908 4,534 4,459 6,146 7,761 2,622 3,779 3,778 2,891 4,164 Table 3.6 illustrates that the IPO channel has completely collapsed. In fact by 95% compared to pre-crisis levels. In US, by comparison, the IPO levels have recovered quickly to only 35% below the pre-crisis levels. The virtual closure of the market since the crisis has a serious effect on companies by limiting access to finance for not only new companies (by using IPOs), but also companies seeking followon offerings. Although follow-ons have been more successful in recovering (due to, amongst other things, lower risk levels and more information on the company), they are still at roughly at 50% of their pre-crisis level. Due to several reasons (discussed below), there has been a rise lately of alternative and new financial products as well as financing mechanisms. This has significantly contributed to new capital being raised in the post-crisis world. By comparison in the US, where such products and mechanisms are increasingly the norm, they have contributed significantly in a very swift recovery of this indicator, even exceeding the pre-crisis levels in 2012. Debt financing has been the largest contributor to new capital raised in 2012. However, this has been dominated by four sector leaders, which took out huge loans, for example: Elan Corp. USD600 million (EUR 438 million) and Jazz Pharmaceuticals USD 575 million (EUR 419.8 million)54. When these are taken away the remaining figure is closer to the overall trend of around USD 400 million (EUR 292 million). This suggests a challenging environment for most other smaller R&D-phase companies. Venture Capital has fallen from an average of USD 1.8 billion (EUR 1.31 billion) raised in the precrisis levels to an average of USD 1.3 billion (EUR 950 million) in recent years. This has been largely due to the on-going economic woes in Europe, but also significantly changing market conditions. Using the collapse of the IPO market as an example; IPOs are crucial to Venture Capital as they are an important mechanism to realise their profits, by selling their equity shares of a company that they invested into on the open market. If this option is removed then investing into companies becomes a lot riskier. With young companies, or R&D-phase companies, there are already other significant risks, so an additional risk such as a more difficult exit strategy can mean 52 Venture capital investments are particularly important for start-up companies that do not have access to capital markets or 53 Ernst & Young; Biotechnology Industry report 2013 54 Ernst & Young; Biotechnology Industry report 2013 other sources of funding. Start-up companies are often considered high-risk due to the large number of failures especially within the first 5 years. Therefore venture capital investment is considered a high-risk investment into companies that are seen to have a long-term growth potential. Study in support of Impact Assessment work on Blue Biotechnology 23

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