10 Sep Pete Shagory: Baird Venture Partners sees more Wisconsin success stories
Editor’s note: This interview with Pete Shagory was conducted before WTN reported that Caden Biosciences, one of Baird Venture Partners’ investments, had closed. Shagory has declined to comment on why the company closed while its liquidation is in progress.
Pete Shagory, a partner with Baird Venture Partners, is not taking his eye off investment opportunities in Wisconsin.
The firm, which is part of the global Baird Private Equity platform, invests in the healthcare, life science, and business services sectors. BVP recently raised $170 million for its third investment fund, much of it from institutions in Wisconsin, but thus far money from Fund III has been used to support two companies outside of Wisconsin – Latin Vest Investment Co. in Atlanta and Inside Track, Inc. of San Francisco.
However, two successful Wisconsin exits suggest that worthy state companies will be tracked for future capital deployments. They include the Madison research tool-maker NimbleGen, which was sold to pharmaceutical and diagnostic giant Roche for $272.5 million, and TomoTherapy, the Madison-based developer of the Hi-Art radiation therapy system. TomoTherapy’s May 2007 initial public offering netted $180 million and was one of the largest U.S. venture-backed medical device IPOs in history.
Shagory and Gregg Fergus, executive-in-residence for Baird Venture Partners, recently spoke with WTN about the company’s investment strategy. Excerpts from the interview are as follows:
WTN: The casual observer that may not understand how venture investing works may wonder why, if the fund is raised from institutions that are mainly in Wisconsin, are funds invested nationally. Why aren’t investments focused in Wisconsin and the Midwest?
Shagory: We’re a sector-focused fund, really in two areas – in business services and healthcare-life sciences. Our feeling is that if you’re going to be sector-focused, it’s important to really have a national perspective, a national reach, to be able to look at the best opportunities coast to coast. Part of it is derived from the fact that we are sector-focused and therefore we want to be national to invest all over the country.
That being said, we’re based in the Midwest and we think the better platform, and being headquartered in Wisconsin, gives us a platform and a brand to be able to see the best opportunities in the Midwest. So we think our strategy is one where we give our investors national investment exposure, and some of the most exciting venture opportunities nationally, but we also are able to find and help and work with companies in our own backyard in Wisconsin and the Midwest that get overlooked, frankly, by coastal venture firms. TomoTherapy and NimbleGen are two perfect examples of that.
That allows us to build a portfolio that’s about 50 percent in the Midwest and 50 percent outside the Midwest.
WTN: You mentioned TomoTherapy and NimbleGen. Obviously, they had very successful exits. I know you won’t identify any specific investment target, but are there other Wisconsin companies that you’re looking at now that could become that kind of success story?
Shagory: We think so, absolutely. I think certainly having Gregg Fergus based in Madison is a sign of our commitment to the Wisconsin area, and we look at a lot of different companies in the area. Sometimes, there are opportunities we’re very interested in, but they just haven’t met our criteria yet in terms of stage or maturity or proof-of-concept. There are a number of companies that we’re watching and we try and make sure there is not any opportunity in the Wisconsin area that we don’t know about, or who we’ve not spoken to at least once, and we try to be supportive of them because when they get to that point, from an investment standpoint, we can feel comfortable meeting our criteria.
One of our stated areas of interest in life sciences is the tools and diagnostic space, so research tools and instruments, consumables, and clinical diagnostics, and Madison has really created an area of expertise in that particular sector with Third Wave [Technologies], Promega, and PanVera [now Invitrogen]. There is some great technology and people there, so that’s an area we continue to focus on. I don’t know if we want to talk about any specific company at this point.
Fergus: In terms of our network, we keep a constant dialogue with WARF [Wisconsin Alumni Research Foundation] and Venture Investors, and some of the seed-based companies in Wisconsin, to make sure that we do have a good idea of the technology companies either coming out of the university or technologies locally in the state that are great tool or molecular diagnostic companies – even companies that are split off from either a Promega or a Mirus Bio, people that have gone from one company to start another. We maintain a very close dialogue with those professionals.
WTN: For a possible syndication type of deal?
Shagory: Yes. With respect to Venture Investors, from my perspective they have moved a little bit earlier stage over time, looking at companies more and more that are coming directly out of the UW and now the University of Michigan in Ann Arbor, and those are companies that are generally too early stage for us. All these companies take more capital than one fund can provide, so there is a benefit when you have a complementary approach between funds where one fund is early stage and, as the company matures, funds that can help that company advance. That’s where we have a very nice relationship with VI in that we’ve co-invested together a number of times as some of their companies are looking for later-stage funding, or the next stage of funding that is appropriate for our fund, based on our investment criteria.
WTN: Given that companies need angel capital to get to the point where you would be interested, I want to ask about Gov. Doyle’s proposals to expand Act 255 and boost capital formation. Based on your experience as an investor, does that factor into your decisions – how capital friendly a state is?
Shagory: I can’t say that I know enough of the details to speak knowledgeably on it, but I’ll say that in general we see meaningful amounts of angel money going into companies, particularly up to the point where VC funds are able to invest in the company. If you look at my experience from other states, there are meaningful pools of angel capital that help these companies get along to the point where VCs can invest. In general, I think it’s really important and I’m really supportive of anything that encourages angel capital going into these young start ups because often times it’s really the first step they have got to take.
I know there are some issues going on with 255, and I want to spend more time reviewing that, but I think in principle anything Wisconsin can do to increase what it’s already doing on that front is a great thing. I’m impressed by what the state has already done. The measures that have been put in place already have clearly helped, and some of the success that we’re seeing in Madison in terms of the proliferation of venture-backed companies and start ups, I think part of the credit goes to what’s happening on the angel front with the angel networks.
WTN: Do you start at $5 million as your baseline for investments, or do you go lower?
Shagory: For BVP III, I think $5 million would be on the low end for us. I think for this fund, having raised a little bit over $170 million, which was above our target of $150 million in capital, our goal would be to invest approximately $10 million per company in the portfolio, and that would be over time, over multiple rounds, so initial investments ranging from $4 to $6 million with reserve capital that increases those positions to $10 million or slightly more over time.
WTN: Does the fact you were able to raise $20 million more than you set out to raise say anything about the national economy being stronger than we think?
Shagory: I think the venture market, the fund-raising market, is still a challenging one, and so we are very pleased that we were able to exceed our target. I think it’s a reflection of our track record historically, and the continued progress we’re seeing in Fund I and Fund II, and the fact that we had the vast majority of our existing investors come back is another great sign that we’ve done a good job so far.
Another reason for our success has been the [global] Baird Private Equity platform in general. If you aggregate the platform with 40 or so investment professionals, and 35 operating professionals across multiple continents, and while we’re really focusing in our respective area, there are a lot of resources we can leverage.
In the venture market today, investors need to be able to add a lot of value in various ways.