Corporate venture funds have risen dramatically since the economic crash in ’08.

Despite the continued drop in first-sequence investments, fourth-quarter and full-year 2011 venture capital numbers for biotechnology showed significant gains. Writing in his blog Life Sci VC, Bruce Booth, a partner at Atlas Venture, offered one likely explanation that didn’t surface in most of the news accounts of VC activity: the rise of corporate venture funds.

“Corporate venture capital’s role in the new biotech ecosystem couldn’t be understated today,” Booth writes. “They are a major syndicate partner for those of us in the early-stage arena, and we couldn’t power up our startups without them.”  As GEN reported back in September 2011, corporate ventures have certainly emerged as key suitors for a growing number of early-stage drug discoverers willing to cede equity for the cash of fund investments and the prospect of an exit through M&A activity down the road.

Booth backs up his argument with numbers, beginning with a few from Atlas: Since 2009, 67% of the deals in the firm’s current Fund VIII have at least one corporate venture group. That’s up from one-third of deals funded through Fund VII between 2006 and 2008 and just 5% of the nearly 40 life science companies funded through Funds V and VI.

The numbers make sense, since ’08 is when the financial markets tanked, sending the traditional VC market into a tailspin from which it has yet to recover. With traditional VCs cutting back or abandoning the biopharma segment, early-stage companies needed another source of funding, while their new corporate partners needed new drugs and technologies to replenish pipelines that shriveled as patent protection ended for blockbusters.

The corporate funds have plenty of money available. While each discloses overall amounts, Booth goes a step further, estimating the “implied” size of each corporate fund based on its annual investment pace and assuming a traditional four-year investment period, with reserves thereafter. While estimating is always an imprecise science, Booth, as a venture capitalist, has better access to the raw numbers.

For example, Atlas joined with Eli Lilly’s venture fund Lilly Ventures and SR One, the independent healthcare venture arm of GSK, in co-leading a $24 million series A financing round announced June 28 by Nimbus Discovery. And Atlas has also taken part in other financings involving corporate VC cash. Most recently on December 15, Atlas announced a multiyear collaboration with Shire Human Genetic Therapies to explore investment opportunities in early-stage rare disease therapeutics; financial terms were not disclosed.

Booth’s status lends credence to his results, which show Novartis and GSK tied at about $400 million, followed by AstraZeneca (about $300 million), then a trio of roughly $250 million funds (Johnson & Johnson, Merck & Co., and Pfizer), then Eli Lilly & Co. (about $200 million), and Mitsubishi (about $100 million).

Some of Booth’s estimates differ from what the companies have said. Take Pfizer, which maintains a $50 million annual budget for private investments and may invest up to $10 million per round in companies at any stage of development, with a strong focus on what it terms growth stages. According to Booth, a fund that makes $50 million a year in direct investments actually puts $100 million of capital to work when future reserves are accounted for. Over four years, that $100 million equates to a standalone fund of roughly $400 million, by Booth’s estimate. Yet Pfizer is only among companies estimated to have funds of $250 million each.

Several biopharmas comprise an “others in aggregate” category that totals $500 million. Presumably the largest biopharmas are named: Amgen, Astellas, Biogen Idec, Lundbeck, MerckSerono, and Takeda—though it would have been better to see a full listing to glean whether other companies with much smaller funds are also emerging.

“I suspect these metrics won’t reverse in our portfolio anytime soon. We’re likely to build most of our companies with at least some element of a pharma equity partner at our sides for the foreseeable future,” Booth says. And based on the numbers, that conclusion is difficult to argue with.

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