In the US, two major regions supply the largest growth of innovation in the biotechnology and medical technology sector, Silicon Valley (SV) and Cambridge, Massachusetts. As a result, investors have always made a footprint in these areas. This action has benefited many sides: the investors, the innovators, and all the employees providing service to the industry. The influx of cash has catalysed numerous innovations from an idea to a complete product. Furthermore, this has provided thousands of jobs for scientists, engineers, and staff, not only in these regions, but all over the world. In return, this has rewarded many of the investors financially, but also the patients who have benefited dramatically through the advanced technologies.
For many years, North American investors have made up greater than 99% of the investment funds in SV and Cambridge. However, in recent years, foreign investors are on the rise, specifically Chinese investors. Not only are these funds on the rise, but the influx of cash is astronomical, with an estimated $2bn in 2018 alone. If we consider these funds similar to the North American funds, the influx of foreign cash should be nothing but a grace to the industry. However, many factors must be weighed before declaring this to be true.
A major concern is the volatility of the funds. Foreign investors do not have a track record of maintaining interest for a lengthy period of time in North America. The biggest fear that venture capitalists in North America face is the notion that foreign investors expect quick returns. As a result, with the lack of modern regulations to mitigate this issue, the foreign investments are volatile. If investors do not obtain earnings readily within the first few phases of investment, the cash could be out the door. This is a major concern. As a result, many of these investments are taken with a grain of salt, for the time being, or taken in syndicate with North American investors. Until this volatility is resolved through regulations, both foreign investors and companies in SV and Cambridge will face challenges.
Foreign cash looks great in theory, however the tangibility of the funds is a concern. Due to foreign regulations, cashing the funds for actual operations is a major difficulty for companies in the US. Though the funds are pouring in, how much of this foreign currency can an innovator or fund manager in the US cash out and utilise for operating purposes? It is unclear how the relationship between the US and China will aid this problem, but the concern is a serious one.
In addition, due to limited expertise, foreign investors tend to overvalue a company in the US. Although we live in a globalised economy, the investors lack technical, management, and market expertise of their investments. As a result, companies are valued with questionable margins without evidence. This further catalyses the volatility of the funds. Overall, Chinese and other foreign investors have provided a strategic cushion for companies in the US. However, this strategic generosity must be analyzed in detail and questioned for longevity.