The Boston area has become arguably the best place in the world to start a biotech company. Meanwhile, the region is still a leading tech hub, but its stature has diminished somewhat in recent years, with many of the most successful and well-known software companies getting built on the West Coast.
That’s the narrative you’ll hear from many Boston-area investors and entrepreneurs these days. Now, there’s new data to help illustrate it.
Since 1990, about 200 venture-backed startups in the Boston area have had exits that exceeded $400 million in value, according to recent research conducted by F-Prime Capital Partners, a Cambridge, MA-based venture capital firm affiliated with Fidelity Investments. Those 200 mergers, acquisitions, and initial public offerings achieved a combined valuation of $370 billion.
Tech companies produced 82 percent of the Boston area’s large exits from 1990 to 2004, F-Prime found. But since 2005, healthcare-focused companies have comprised 53 percent of the big exits locally, according to the firm’s research.
That may come as no surprise, given Boston’s prowess in biotech, medical devices, and other healthcare-related businesses. The shift could also reflect Silicon Valley’s dominance of the mobile computing era.
“That’s a very material shift in the Boston marketplace,” says David Jegen, a partner at F-Prime. “It’s a healthcare town, and we have numbers that make that very clear.”
Jegen worked with F-Prime’s Gaurav Tuli and Ben Gorman to analyze Boston’s biggest exits since 1990 and examine the ripple effect of new companies started by alumni of some of the area’s most successful high-tech firms. Their data sources included PitchBook, Dow Jones VentureSource, Capital IQ, Crunchbase, LinkedIn, and local experts.
Most of F-Prime’s findings aren’t that surprising, but they’re worth highlighting because they help frame the progression of Boston’s innovation community over the past quarter-century—and potentially offer a glimpse of where things are headed.
Here are some of the other highlights of the research:
—M&A vs. IPO: Of those 200 large exits (above $400 million), 60 percent were in the form of a merger or acquisition, and 40 percent were IPOs. The median valuation of those exits was $668 million.
—Market valuations: Of the 66 firms that went public between 1990 and 2016, and are still operating as standalone companies, their median valuation is currently $1.3 billion. Among those 66 companies, 53 have risen in market value, while 13 have seen their value fall since going public. The top gainer is Vertex Pharmaceuticals (NASDAQ: VRTX), whose market valuation has shot up by more than $20 billion. Others in the top 10 include Tesaro (NASDAQ: TSRO), Akamai Technologies (NASDAQ: AKAM), and Nuance Communications (NASDAQ: NUAN).
—Consumer tech: Local observers often lament the Boston area’s dearth of big consumer-tech businesses, and F-Prime’s data support that notion. Of the 200 exits tracked by the firm, only 13 of them—or 7 percent—involved consumer-focused businesses.
“I didn’t think it was going to be that low,” Jegen says.
The number could have been even lower. In a blog post about the findings, F-Prime says it defined consumer tech “generously” by including Nuance and Monster, both of which have consumer users but derive much of their revenue from businesses.
Jegen says the lack of big consumer-tech exits in Boston “has some important ripple effects.”
Public perception is one. The area has built a lot of big companies in healthcare, enterprise IT, cybersecurity, and other “hard tech,” Jegen says, but consumer brands are the ones that generally are household names.
“We clearly have a vibrant ecosystem,” Jegen says. “But I think sometimes we ask ourselves, how does that compare to Silicon Valley or New York? … They’re all great regions to start a business. But the fact that we have so few consumer exits in this area is perhaps one reason why people can’t readily point to what are the big companies that were built in Boston.”
Still, the Boston area may be starting to build some momentum in consumer tech: nine of the 13 consumer-focused exits in the analysis occurred in the past decade, F-Prime says.
“There’s a heartbeat there and some really interesting successes,” Jegen says, citing Wayfair (NYSE: W), TripAdvisor (NASDAQ: TRIP), and Kayak (which had an IPO before being acquired in 2012). “I am hopeful that we’ll see more consumer companies being created in Boston as a result of those recent” wins, he adds.
—Alumni startups: F-Prime also picked 10 successful local firms in tech and life sciences and mapped out how many companies were started by their alumni. Of the companies F-Prime tracked, Akamai has the most startup descendants. Jegen and his colleagues found 38 startups either co-founded by Akamai alumni, or whose early executive hires included an Akamai alum. Others on the list include RSA (with 29 alumni startups), Genzyme (28), HubSpot (24), Endeca (10), TripAdvisor (10), and Wayfair (10).
To help spur more startup successes, Jegen thinks it’s important to foster more connections between the next generation of company builders and seasoned entrepreneurs, who have plenty of tribal knowledge to share—and money to invest. (To that end, F-Prime started Founders Diaries, a series of events in which successful entrepreneurs tell their stories.)
Another useful tactic, Jegen says, is forming support organizations and peer networks around specific sectors. One example is FinTech Sandbox, a Boston-based nonprofit that Jegen co-founded to help financial technology startups access data and other resources.
“If we want to help Boston build off of the sectors where we’re really good and the fact that we’re a big city, but small enough to create a lot of collegiality, I would focus a lot on those grassroots efforts,” Jegen says.
Jeff Bussgang, a general partner with Flybridge Capital Partners, has been tracking data about Boston’s venture-backed startup community for years. He says one of the area’s weak spots is it needs more “breakout companies”—firms that grow to more than $1 billion in annual revenue and a valuation of more than $2 billion, as he defines the term.
“We have a great pipeline of companies that are on their way, and we need them all to succeed amazingly well in the market to create more anchor companies in our community,” Bussgang says in an e-mail. “The fact that there are so many role models of companies that have gone from zero to $1 billion in revenue and are still run by the CEO and founder is encouraging.”