Venture Round: Asian Flavor

A few years ago, back when it seemed like a firm bent on world domination, MPM Capital led a $48 million first round in TaiGen Biotechnology, a small molecule drug discovery company focused on oncology and immunology.

The real news at the time was that TaiGen was based in Taiwan. MPM had teamed up with a number of local firms to back the company, becoming the first U.S.-based VC to invest in a Taiwanese biotechnology company. At the time, in 2001, MPM looked to be the tip of the sword as life sciences venture capital firms looked East (or West really) for the opportunity to make investment in Asian companies. But no one followed MPM’s lead until just recently when firms like OrbiMed Advisors LLC and others began sponsoring Asian-focused firms. Still, early-stage investment in Asian biotechnology companies are rare. (Our February feature on recent investments in Chinese firms is here and an earlier 2006 discussion of VC reluctance to drop money in China and India is here.)

Why are we bringing this up? Well, MPM Capital appears to be Lewis-and-Clarking it again, this time in India. MPM made a $20 million investment in Sai Advantium Pharma, a contract research organization in Hyderabad, India. MPM made the investment after spending the “past couple of years” developing its emerging market strategy and developing deal flow in India. “Out of that work came a handful of opportunities, one of them being pharmaceutical outsourcing,” says William Greene, the general partner who managed the deal. “We then in parallel asked our portfolio companies if they were using preclinical outsourcing services and if they were going to India or China to do it. What came back was more than a handful of companies saying that we are doing chemistry outsourcing and we use this company in India called Sai Advantium.”

MPM followed through with more traditional due diligence. Everything checked out and MPM came to terms with Sai. While MPM was examining the company, Sequoia Capital’s India fund arranged to buy the shares of a Sai executive who was leaving the company and wanted to cash out. Greene said MPM considered buying the shares itself, but it didn’t want to obtain a stake through a secondary purchase. It wanted a piece of the company. Furthermore, Sequoia is among the US VCs with most experience in India, so MPM welcomed the expertise, he said.

A cynic—okay we—might wonder whether MPM’s initial search was fruitful since the firm’s first deal came through a referral from portfolio companies. But Greene says, “There are definitely a lot of opportunities there.

“I think we have pretty good deal flow in India considering that we are largely working with partners and talking about doing our kind of investment. There is no shortage of growth equity opportunities in hospital and health care infrastructure and that is the sort of thing we could invest in.” But MPM prefers to stick with its core strategy of investing in life sciences companies. “Those types of deals are certainly [out there]. The fact is the entrepreneurial environment for biotech and medical devices is early there. But even in the two or three years we’ve been traveling there, the fact of the matter is the country is poised, I think, to be a really good target for life sciences.” MPM also benefits from having Reliance Life Sciences, an India-based life sciences group, as a limited partner in its current fund.

Greene isn’t comfortable making this statement, but we’re going to go out on very wide limb and say this is the first significant investment that a US-based life sciences VC has made in an Indian company. “I’ve had a hard time finding [comparable investments],” Greene says. Buyout firms, however, are finding deals in more established health care companies.

(Update: Well, that limb wasn't as wide as we thought. We should have directed you to TPG Biotech's investment in Matrix Laboratories Ltd. , a contract research and manufacturing outfit in Secunderabad, India. Yes, TPG is affiliated with Texas Pacific Group, the buyout megafund. But it's still venture fund. Read all about it in our April 2006 START-UP here and here.)

Still, MPM, once again, finds itself ahead (check that, at the head) of the pack. However, unlike in Taiwan with the Taigen investment, we probably won’t have to wait very long for another venture firm to step up.

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Fund-raising Tidbits: Greene wouldn't say this, but it appears as if MPM will be out raising a new round, maybe as early as this year. It has invested more than half of its fourth fund.

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Merlin Nexus announced a first close of $40 million Merlin Nexus III, L.P. As it's done with its previous funds, Merlin (not to be confused with the former UK-based firm now operating under the Excalibur brand) will invest in late-stage private and public companies in the biotechnology, medical device, specialty pharmaceutical and molecular diagnostic fields. Merlin Nexus III has a $125 million target.

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Meanwhile, MVM Life Science Partners has closed on GBP130 million ($253 million) toward its third venture fund, according to this morning's VentureWire. MVM expects to hit its GBP150 million ($292 million) target in a few weeks.

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Golden Temple photo @ Wikimedia Commons