Venture Firm Raises $400M for Healthcare Fund
By RAJIV VYAS
Who says raising money for a venture fund is hard?
Ask Barbara Lubash and Donald Milder, partners at the Newport Beach office of Versant Ventures. After three months, their firm raised $400 million to invest in healthcare companies.
“The tide seems to have changed,” said Lubash, managing partner at Versant’s Newport Beach office. “There’s a lot more interest in investing in healthcare.”
Versant, which also has a Menlo Park office, started raising money for its second fund in September, a week before the terrorist attacks in New York and Washington, D.C. The partners said the stock market’s drop after the attacks didn’t hamper their efforts. By early November, Versant had commitments from institutional investors and closed the fund earlier this month.
Raising the money “wasn’t much of a process for us,” Lubash said.
Versant invests in biotechnology companies, healthcare service providers and device makers.
Portfolio companies in the firm’s first fund include: Laguna Hills-based Glaukos Corp., a startup working on an implantable Glaucoma treatment; San Clemente-based Cameron Health Inc. a seed-stage heart device developer; and Laguna Hills-based Cogent Healthcare Inc., which helps insurers and hospitals manage costs.
Nearly all the investors that backed Versant’s first fund supported the second one, the partners said. The new fund counts 32 institutional investors and endowment funds.
The second fund was more or less pre-sold before Versant went out on road shows, according to Milder.
“Almost all of our existing limited (partners) sign up, and they wanted to have more of this fund,” he said. “So we really had only 10% of the $400 million unallocated when we went out.”
Milder said Versant could have raised more money, but the partners decided not to.
“We had received a lot of interest from many unaffiliated limited partners that were looking to get more healthcare involvement,” he said. “Unfortunately, we were able to accommodate only a handful.”
Versant only invests in early stage companies. If a portfolio company performs to expectations after the first round, then the firm follows with second and third rounds until the company goes public. Versant typically invests $9 million to $15 million in a company in all rounds.
“If we had raised more money, it would mean we would have to change our model,” Milder said.
Versant would have had to increase the the amount invested in individual rounds if it had raised more money, Milder said.
And Versant didn’t want to invest more dollars per company, according to the partners. The firm wanted to limit its portfolio to about 40 companies. With eight partners and five companies per partner, 40 is a good number, they said.
“Deviation from our existing model could have impacted our performance,” Milder said.
Versant raised $270 million for its first fund in late 1999, right around the time many had forsaken healthcare investments for the Internet.
“Now that the Internet bubble has burst, many investors have found their weighting is skewed towards tech, and they want a more diversified holding,” Milder said. “Healthcare is now back in vogue.”
To be sure, Versant is enjoying a pendulum shift in its favor. With a still shaky stock market and the economic downturn, raising venture money hasn’t been easier for some firms.
A handful of OC venture firms have been unable to close technology funds recently, even after spending six months or longer on the road. After getting burned by dot-coms, institutional investors are focusing on private equity and healthcare venture funds, industry sources said.
Versant said it also benefited from the track record of its partners, seven of whom co-founded the firm. Five work out of Menlo Park, while the other three are in Newport Beach.
Until 1999, Lubash and Milder were partners at the Irvine office of Crosspoint Venture Partners, one of the top firms in the country with an internal return rate of more than 100% in the past five years.
Three Versant partners,Brian Atwood, Ross Jaffe and William Link,were partners at Brentwood Venture Capital. Two other partners, Samuel Colella and Rebecca Robertson, worked with Institutional Venture Partners before co-founding Versant.
Despite launching during the height of the dot-com era, Versant’s first fund raised its target in three months, too. So far, none of the fund’s 26 portfolio companies has gone public. Almost 80% of the fund’s investments have been in California companies.
