Venture capital firm Venture Investors has closed a $115 million fund that it will use to invest in as many as 20 seed and early-stage companies, particularly those spun out of research universities in an eight-state region of the Midwestern US, the firm said this month.
Venture Investors also said that it has already invested undisclosed amounts from the fund in five companies, four of which are in the biotechnology or pharmaceutical space, underscoring the VC firm’s long track record of investing in companies from those sectors.
However, the firm said that it also plans to invest in more companies spun out of interdisciplinary university research, and hopes to leverage its proximity to the University of Wisconsin-Madison and the University of Michigan to achieve this goal.
Last year, Venture Investors announced its first closing on $69 million of the new fund, called the Venture Investors Early Stage Fund IV Limited Partnership. Since that time, the company has secured $46 million in additional commitments.
Those commitments came from a combination of new and returning limited partners, Venture Investors said. Returning investors included the State of Wisconsin Investment Board, American Family Insurance, Wisconsin Alumni Research Foundation, US Bank, Robert W. Baird & Co., and MGE Energy.
New investors included funds managed by Credit Suisse’s Customized Fund Investment Group for the Venture Michigan Fund, the Michigan Strategic Fund, and the State of Michigan Retirement Systems; as well as Sentry Insurance, WEA Insurance, Northwestern Mutual, Thrivent Financial, and Briggs and Stratton Pension Fund, Venture Investors said.
The $115 million Early Stage Fund IV is more than three times as much as Venture Investors’ last fund, Early Stage Fund III, which raised $37 million in 2000. Venture Investors, which is headquartered in Madison, Wis., said that fund invested in 18 companies, 14 of which were spinouts of Midwestern research universities, and nine of which spun out of UW-Madison.
Three of the Fund III companies – UW-Madison spinouts TomoTherapy and Third Wave Technologies, and University of Michigan spinout IntraLase – have completed initial public offerings. A fourth, UW-Madison spinout NimbleGen Systems, had filed for an IPO before announcing last month that it would be acquired by Roche.
In fact, Venture Investors started in 1982 with a focus on Wisconsin-based companies only, and gradually began to tap into the wealth of commercial potential associated with research being conducted at UW-Madison, John Neis, managing director of Venture Investors, told BTW last week.
“We initially approached a lot of entities within the state of Wisconsin that certainly knew of the prominence of UW-Madison, and told them the story of the untapped opportunity here in the Midwest,” Neis said. “As we generated some successes in our early funds, we were able to build that base of investors, and I think it became particularly evident with our most recent funds that we were really able to broaden that.”
One of those early successes was Promega, in which Venture Investors invested a relatively small amount in 1984. Promega has since grown to employ more than 900 people in 11 countries, with annual revenues of more than $200 million.
“We’ve been very fortunate over here in Madison,” Neis said. “We’ve got the oldest university tech-transfer office in the country with WARF, and they’ve built a considerable endowment over the years. That has really given them the flexibility to be more aggressive and build out their capabilities to a far greater extent than most tech-transfer offices. It was a lot easier for us to do it here initially than in a lot of places around the country.”
Recently, Venture Investors has branched out even more, at least geographically speaking, with the establishment of an office in Ann Arbor, Mich., earlier this year. The VC firm is hoping to establish a similar relationship with the University of Michigan, also located in Ann Arbor.
“Here we were in the backyard of [UW-Madison], the fourth-largest research university in the country, and we saw a lot of parallels in Michigan, and in Ann Arbor in particular, which has the third-largest research institute in the country [with] a very strong tech-transfer office like [UW-Madison], and where we felt there was just a huge untapped opportunity,” Neis said. “While [the University of Michigan] doesn’t have the endowment associated with their tech-transfer office like WARF, they certainly understand the model and have been very eager to work and help spin out entrepreneurial-oriented companies.”
“We’ve been very fortunate over here in Madison … We’ve got the oldest university tech-transfer office in the country with WARF, and they’ve built a considerable endowment over the years. That has really given them the flexibility to be more aggressive and build out their capabilities to a far greater extent than most tech-transfer offices.”
Venture Investors’ current target market is an eight-state region in the Midwest that includes Wisconsin, Michigan, Minnesota, Iowa, Illinois, Missouri, Indiana, and Ohio. The firm has also invested in spinouts from Northwestern University, University of Illinois, University of Chicago, Iowa State University, and Michigan State.
Neis said that it is possible that Venture Investors will eventually open additional offices in one of the aforementioned states, but it has no immediate plans to do so, and the Early Stage Fund IV will be managed out of Madison and Ann Arbor.
Venture Investors has shown a similar proclivity toward investing in life science companies. Of the 16 portfolio companies listed on its website, 11 are categorized as biotechnology or medical device companies, while five are information technology or engineering firms.
In addition, of the VC firm’s five most recent investments, also announced last week, four are in the life sciences sector. These include Caden Biosciences, a Northwestern spinout developing G-protein coupled receptor drug-discovery assays; Mithridion, a UW-Madison spinout developing treatments for neurodegenerative diseases; Incept Biosystems, a University of Michigan spinout developing devices to improve the viability of embryos cultured during in vitro fertilization; and Procertus Biopharm, a UW-Madison spinout developing oncology drugs.
The fifth recently announced investment was in Virent Energy Systems, another UW-Madison spinout that has created a process to convert sugar-based feedstocks into renewable gases, liquid fuels, and chemicals.
Neis declined to disclose the amount of the investments made in those individual companies, but said that Venture Investors hopes to gradually commit between $5 million and $7 million to the companies, depending on growth rate and development milestones.
According to Neis, the disproportionate amount of health care-related investments is mostly a reflection of the research being spun out of area universities. However, Venture Investors plans to further diversify its portfolio by seeking out start-up companies based on interdisciplinary research, and hopes to leverage its proximity to UW-Madison and the University of Michigan to do so.
“We’re also really interested in convergence deals,” Neis said. “We think that some of the best opportunities emerge when you get researchers in different disciplines talking with one another.” Neis said that UW-Madison is one of only three institutions in the country to rank in the top 15 in total research spending in the areas of life sciences, physical sciences, and engineering.
Similarly, he said, University of Michigan ranks very high in interdisciplinary research. “So we’re as poised for that kind of interdisciplinary action as anywhere in the country,” Neis said. “We wanted to be in a position to assess and assist companies that were developing pure plays within certain silos of technical expertise, and those that were a result of interdisciplinary interaction.”