09 Jul Venture Investors' early-stage fund grows to $115 million
Madison, Wis. – Following up on an initial closing announced last year, Venture Investors now has raised $115 million for its Early Stage Fund IV Limited Partnership.
The Madison-based venture capital firm, which raised $69 million in the initial closing, said the additional funding places Early Stage Fund IV among the largest Midwest-focused, early-stage venture capital funds.
John Neis, managing director of Venture Investors, said the fund would continue to focus on investments during the formative stages of technology and biotechnology companies that have spun out of leading research institutions in Wisconsin, Michigan, and the Midwest.
Venture Investors, which now has $200 million under management, has strategically placed offices next to the nation’s third- and fourth-largest research universities, the University of Michigan and the University of Wisconsin-Madison, respectively.
“We’re doing what we’ve always done,” Neis said. “We believe there is a huge, untapped opportunity in research universities in the Midwest.”
Venture at the early stage
With the additional committed capital, Venture Investors will continue to invest in seed and early-stage companies that are formed to commercialize discoveries in life sciences, engineering, and information technology sectors. Taking a cue from federal agencies, the company also has committed funds to companies that are formed from interdisciplinary interaction between researchers in these fields.
While the perception of venture capital firms is that they now prefer later-stage deals, Venture Investors’ investments have included 19 companies that were spun out of research universities. The firm typically invests between $500,000 and $2.5 million in a first-round financing, and up to a total of $10 million in a portfolio company over time.
“We keep having people tell us we don’t do early-stage, but that’s not necessarily the case,” Neis said. “We did the initial funding for Third Wave Technologies, TomoTherapy, and Deltanoid. All of these were made at the point where the companies were stepping off campus.”
Neis said the decision to pursue either angel or venture capital should be made on a case-by-case basis. A lot depends on the nature of the investment opportunity, the size of the company’s needs, and the milestones it has met.
“Some companies should take the angel path, and others should go on the path of venture capital right out of the shoot,” he said.
Making a commitment
Commitments to Venture Investors Early Stage Fund IV came from a combination of new and returning partners, all in either Michigan or Wisconsin. They include the State of Wisconsin Investment Board, American Family Insurance, Wisconsin Alumni Research Foundation, US Bank, Robert W. Baird & Co., and MGE Energy.
Other new investors included Sentry Insurance, WEA Insurance, Northwestern Mutual, Thrivent Financial, and the Briggs and Stratton Pension Fund.
Thrivent Financial has offices in Appleton and the Twin Cities. Glen Vanic, senior managing director of private investment for Thrivent, said the company allocates between 5 and 10 percent of its revenues to venture capital, and is interested in supporting discoveries out of UW-Madison and other Midwestern institutions because they are largely ignored by national investors.
“The people of the venture community have under-weighed the Midwest area,” Vanic said. “The University of Wisconsin’s research efforts are among the top six in the nation, in my mind, and Venture Investors has access to this cutting-edge technology.”
Vanic said Thrivent also is impressed with the quality of management teams put together by Venture Investors, and by the company’s performance track record. Thrivent now has a total of $5 million committed to Venture Investors, and also has made commitments to funds like Split Rock Partners, which is based in Minneapolis and has an office in Menlo Park, Calif.
Also among the new investors outside of Wisconsin were 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.
The $115 million is triple the size of the $37 million Venture Investors Early Stage Fund III, raised in 2000. That fund invested in 18 companies, 14 of which were spin-outs of research universities in the Midwest, including nine spun out of UW-Madison.
Three of those companies have completed initial public offerings – TomoTherapy and Third Wave Technologies, which were UW-Madison spin-outs, and IntraLase, which was a University of Michigan spin-out.
NimbleGen Systems, a UW-Madison spin-out, had filed for an initial public offering before announcing that it is being acquired by Roche, a global pharmaceutical company.
Noting that Venture Investors always has been a Midwest focused fund, Neis did not attach any particular significance to the multi-state effort. In general, he said investors don’t want to see artificial geographic boundaries being drawn.
“We want to be closer to home, so it’s natural that a disproportionate number of deals are made closer to our offices in Madison and Ann Arbor,” Neis said, “but we are targeting investments in an eight-state Midwestern region.”
In addition to Wisconsin and Michigan, that region includes Minnesota, Iowa, Missouri, Illinois, Indiana, and Ohio.
With money raised for Early Stage Fund IV, Venture Investors has thus far made five investments, and eventually it expects to back 20 companies with the fund.
Those companies include Virent Energy Systems of Madison, a clean technology company that is a developing renewable energy from feedstocks; Caden BioSciences, is a life science tools and services company spun-out of Northwestern University; Mithridion, a UW-Madison spin-out that is developing drugs for neurodegenerative diseases like Alzheimer’s disease; Procertus BioPharm, an oncology-based pharmaceutical company spun out of UW-Madison; and Incept BioSystems, a University of Michigan spin-out that is developing products to improve the viability of embryos cultured during in vitro fertilization.
More Tomos out there
Neis believes there are more TomoTherapy-like success stories amid these and future investments. “We certainly believe there are some very significant investment opportunities in the region,” he said, “and we certainly believe there will be added opportunities to create success stories at a similar scale.”
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