Investors renew appetite for start-ups

Index Ventures, based in London and Geneva, raised €350 million for its Fund IV, which will make early stage investments in information technology, life sciences, and green technology companies in the US and Europe.

Meanwhile, SV Life Sciences (formerly Schroder Ventures), said it closed its SV Life Sciences Fund IV with total commitments of €435 million. Both said the funds were oversubscribed.

These announcements come on top of news of Europe’s largest life sciences venture fund to date, Abingworth’s £300 million fund, which closed in January. Alongside these three, other significant funds licking off this year are Creandum, the Nordic fund worth US$107 million, German VCs Wellington Partners’ first closing at €50 million of an expected €150 million fund, Neuhaus Partners of Hamburg reaching the €70 million first closing of a proposed €100 million fund, and Nesta, the UK’s National Endowment for Science Technology and the Arts’ £50 million fund.

Related manoeuvres include the spin-out of Forbion Capital Partners, formerly the life sciences investment arm of the Dutch bank ABN Amro, with €200 million to invest, and mobile phone giant Nokia saying it is to invest US$100 million in a venture capital fund of funds.

Still some hesitation

Despite their happy experience, Francesco De Rubertis, General Partner at Index Ventures, Geneva, hesitates to say the overall climate is improving. “I don’t know if it is possible to say; some of our competitors have taken 12 months to raise funds. We’ve been lucky and were able to raise the fund quickly.”   

Index could have sold the fund several times over to investors in previous funds, but decided to broaden the investor base, taking in a small group of new US investors. In total there were $1.5 billion to $2 billion-worth of requests to join the fund.

Green technology is a new departure for Index, and the firm is yet to do any deals in the field. Other than that, it is sticking to previous approach of balancing shorter term investments in information technology with the longer term commitment required in life sciences.

“The team behind Index has been together for ten years and the returns have been consistent. [Investors] wanted to hear us saying we were doing more of the same,” said De Rubertis.

Perhaps its most golden moment in the past decade was the acquisition of investee company Skype Technologies SA, the internet telephony start-up which was sold to eBay for $2.6 billion in cash and shares in October 2005. At the same time as announcing fund IV, Index said also that former Skype global marketing vice president and Video Island founder Saul Klein was to become a venture partner.  The firm also announced additions to its life science team with the appointment of PanGenetics NV founder Mark De Boer to venture partner and the promotion of Michèle Ollier, to partner.

Historically, Index has put two -thirds of its funds into IT and one-third into life sciences and it expects the same proportions to apply this time around.

“More than anything it’s a reflection of the deal flow,” said De Rubertis. “Life sciences deals absorb more money and take longer to mature.”

Over the next two to three years the new fund will invest in 10 to 12 life sciences companies. “The starting point will be European-based business plans, but they have to grow globally; they can’t be regional players.”

Biotech on a wave

Of late the capital markets have seen the first major wave of success in biotech as companies created in the mid 1990s, such as Actelion, Genmab and Crucell have matured. “These investments are paying back now and generating more receptiveness in the capital markets in Denmark, Switzerland and Benelux,” said De Rubertis.

Kate Bingham, Managing Partner at SV Life Sciences agrees. “There is more money that sees life sciences venture capital as attractive. Twelve years ago when we raised our first fund and lot of people said ‘you’re doing what?’: now it is an accepted asset class.”

SV investors are split between 40 per cent in Europe and the rest of the world, and 60 percent in the US. Like Index there was no difficulty raising this fourth fund – something that is presumably not un related to the fact that SV has sold $2 billion worth of companies in the past year, including PowderMed, GlycoFi, KuDos Pharmaceuticals and Solexa.

Like Index also, SV, based in Boston and London, took the opportunity to widen its investor base. “We went for more foundations and endowments, because they tend to take a longer term view,” said Bingham.

The first deal from the new fund – in a US contract research organisation – will be announced next week. Bingham said the bulk of the fund’s investments will be in the US. “There are better stock markets and more liquidity. The US is by far the most mature market. In Europe there are innovative ideas, but there is a much thinner pool of people [to run companies] and the stock markets are weak.”

Having said that Bingham noted that all the firm’s recent exits have been trade sales, and all started out as negotiations to licence technologies.

SVLS IV, brings the firm's total funds advised or managed to $1.6 billion, making it one of the largest venture capital investment groups dedicated to the life sciences sector. SVLS IV will be focused on providing start-up, early stage and expansion capital to private life sciences companies in the US and Europe, investing across biotechnology and pharmaceuticals, medical devices, healthcare services and healthcare information technology. Investment size will typically be between $5 and $25 million.