In a recent interview Sam Altman (the current president of Y Combinator, the famous Silicon Valley startup incubator) was asked which areas of investing did he thing were really hot, yet under appreciated.  Altman immediately brought up biotech — an area that he thought not enough investors were paying attention to.  Why biotech now?  The costs of doing experiments are much lower, and the amounts of data that can be generated by increasingly automated laboratories are astonishing.  In addition, startup companies are more and more virtual (e.g. using Amazon Web services for all their computing). But the single biggest factor is that cycle times are now much shorter, according to Altman.

[…] biotech is probably a very good idea. But in the first biotech boom it was just too early. The costs were too high and the cycle time was too long. And I’ve really come to believe that those two things, low cost and low cycle time, are the most important things for startups in a given area to be successful. But now, in biotech specifically, which is an area where we’ve been active recently, the costs and the cycle time have come down quite dramatically. And so you are able to have a startup that for a few million dollars or in a year or something can get something really meaningful done. And that’s a brand new thing. And that’s hugely, like a gigantic megadeal–I think most people still fail to understand that.

Listen to Russ Robert’s EconTalk for the full interview (audio and transcript) on Startups, Venture Capital, and the Y Combinator.  The biotech discussion happens a little after the 29:25 mark.