Thursday, July 15, 2010

Financings of the Fortnight Is A Poet and Doesn't Know It

It's not quite thirteen ways of looking at a blackbird, but the two main venture surveys have delivered two different ways of looking at the latest VC fundraising numbers in the US. You be the judge if anyone is exercising a little poetic license.

Here's the headline of the quarterly report from the National Venture Capital Association and Thomson Reuters: "VENTURE CAPITAL FUNDRAISING ACTIVITY REMAINS SLOW: Dollars Raised Declines to Lowest Quarterly Level in 7 Years." (Their capital letters, not ours.)

Now, DowJones VentureSource: "Venture Fund-Raising Rallies After 6-Year Low in 2009: Venture Fund-Raising Up 13% in First Half of 2010; Substantial Closes By Established Firms Buoy Totals."

Caw! Ain't that something? Talk about glasses half full or empty.

(Meanwhile Wallace Stevens, who as an insurance company executive knew a little something about finance, "was of three minds / Like a tree / In which there are three blackbirds.")

Beyond the headlines, the researchers' numbers don't match up, either. (Keep in mind these are for all venture firms; the surveys don't separate life science from high tech or clean tech since most firms invest in more than one sector.) DowJones says 72 funds raised $7.5 billion in the first half of 2010. NVCA/Reuters says 69 funds raised $5.6 billion, or a full 25% less.

Half that $2 billion gap was immediately explainable: DowJones included Sequoia Capital's $1 billion Sequoia China Foreign Currency Fund III. NVCA/Rueters did not, because the fund is managed from Beijing, a spokeswoman said. So there's a difference in how each shop accounts for "US" venture. Another difference the two sides acknowledged to us could explain the gap is when they count dollars. When an active fundraiser brings in $100 million in Q4 '09 and $100 million in Q1 '10, DowJones is more likely to count the raises separately, while NVCA/Reuters only counts "closed cash," a spokeswoman said.

Enough sausage-making for now. The methodology behind the madness might not make for the sexiest blog copy, but we still have those divergent headlines to explain. DowJones chose to highlight the bump from 1H '09 to 1H '10, though their release includes a slide that shows 1H '10 still far below the first-half totals from '07 and '08. The bigger picture is that the NVCA -- the trade group for the venture community -- has been forthright for several quarters about the coming shakeout. Fewer VCs mean fewer members -- down about 7% from an all-time high of 460 -- but NVCA execs haven't sugar-coated their forecasts or descriptions, including this week's all-caps headline.

NVCA's data is more extensive and show the years 2005 to 2008 saw annual venture fundraising that totaled between $28 billion and $36 billion. Last year, the total was under $16 billion. This year, Q2 numbers are up from Q1, but it's fair to say VCs will be hard-pressed even to match 2009's dismal total.

So where's the money going if not into US venture funds? One clue can be found in the Sequoia China fund that accounts for half the $2 billion gap we just mentioned. In a VC survey released this week by NVCA and Deloitte, a majority of VCs in China, India and Brazil expect venture to expand in their countries in the next five years. Wishful thinking or not (and that Sequoia fund makes us think not), it's stark contrast to the US response. More than 90% of US VCs expect a stateside contraction through 2015. Large majorities in France, Israel and the UK said the same for their countries. In other words,

It was evening all afternoon.
It was snowing
And it was going to snow.
The blackbird sat
In the cedar-limbs.

Some call it poetry in motion. Some call it purple prose. We call it...

Trevena: The blue-chip investor group backing small-molecule drug developer Trevena has re-upped with a $35 million Series B round, two years after supporting it in a $25 million Series A. New Enterprise Associates, Polaris Venture Partners, Alta Partners and HealthCare Ventures contributed equally to both rounds, Trevena CEO Maxine Gowen told "The Pink Sheet" DAILY. Yasuda Economic Development Corp. of Japan made a small contribution to each round as well. King of Prussia, Pa.-based Trevena is exploring drugs based on biased ligands, which bind with G-protein coupled receptors but only activate pathways with beneficial effects, potentially resulting in more specific and better-targeted therapies. The startup will use the funds to support Phase II trials on its primary candidate, a compound to treat acute heart failure, as well as preclinical and early clinical development of drugs that treat pain and inflammation. Last fall, Trevena received a $7.6 million grant from the National Institutes of Health to identify and improve biased ligands that act on six GPCRs. According to Polaris’ Terry McGuire, Trevena’s research could also yield broader insights into biased ligands, potentially making its platform useful in improving a wide variety of therapies. -- Paul Bonanos

Sunesis Pharmaceuticals: Despite a stock price near 50 cents a share, Sunesis finally closed an epic three-tranche $43.5 million financing on June 30, cash it sorely needs to push its lead candidate voreloxin into Phase III pivotal trials for acute myeloid leukemia later this year. It's been a rollercoaster ride for Sunesis, which public in 2005 then suffered a big setback in 2007 in its Phase II lung cancer program and discontinued two trials. The next year it cut all discovery research and went all-in on late-stage development of voreloxin in ovarian cancer and leukemia. To kickstart the three-part financing, a group of investors including Bay City Capital, Venrock Associates and Alta Partners purchased 2.9 million preferred shares last April at $3.45 a share and redeemable for 10 common shares. The second tranche in October placed 1.45 million preferred shares at the same price. With the closing tranche, Sunesis sold 103.6 million common shares at 27 cents a share and returned to a single class of stock, as all preferred stock issued through the first two tranches converted into common stock. While the financing was highly dilutive -- the company now has 221.2 million common shares outstanding -- it netted the company $41.7 million at a time when Sunesis was cash-poor despite promising Phase II results for voreloxin in AML. -- Joseph Haas

Calithera Biosciences: It's a Jim Wells double-dip this week. The former Genentech protein engineer who founded Sunesis is also a co-founder of Calithera, which announced July 7 a hefty $40 million Series A to further its work on small-molecule oncology compounds that activate capsases. Now the head of his own lab at the University of California, San Francisco, Wells published a paper in Science last fall that detailed a method of directly activating caspases in order to induce apoptosis. Calithera took a license from the school, and it has also tapped into Mission Bay Capital, a venture fund affiliated with QB3, a research and entrepreneurial outreach institute headquartered at UCSF that shares a roof with the Wells Lab (Wells is also on QB3's executive committee). Morgenthaler Ventures led the round, which also included U.S. Venture Partners, Advanced Technology Ventures, Delphi Ventures, and Mission Bay. Calithera hopes to enter a candidate into Phase I trials within four years. Calithera’s Series A is the second-largest for a biotech in 2010, following only Incline Therapeutics’ $43 million round, which we'll dissect in the upcoming issue of Start-Up. -- P.B.

iPierian: The stem-cell startup said June 30 it lost its CEO John Walker but gained an unusual new investor in Google Ventures, the venture arm of the Web search giant that led iPierian's $22 million Series B round. Google famously backed genetic testing firm 23andMe, run by Google co-founder Sergey Brin's wife Anne Wojcicki, but the venture arm -- launched in March 2009 with a $100 million commitment from sole LP Google -- now handles all Google venture activity. At a time when the stem-cell field is starting to explore ways to generate revenue, iPierian is one of a few firms developing induced pluripotent stem cells for drug discovery purposes. The product of a merger of two tiny start-ups last year, it's jostling with rivals, particularly Fate Therapeutics, to build a patent portfolio. The B-round syndicate includes existing backers Kleiner Perkins Caufield & Byers, Highland Capital Partners, MPM Capital, and FinTech Global Capital, plus first-time investors Mitsubishi UFJ Capital and ATEL Ventures. iPierian also said that CEO Walker, who's been deeply involved in starting a regenerative-medicine lobbying group, was stepping down for personal reasons. President and chief scientific officer Michael Venuti will replace him and take his board seat. Venuti is a veteran medicinal chemist with stints at Celera, Axys, Genentech and Syntex. iPierian is Google Ventures' second biotech investment; its first was a September 2009 Series D round supporting Adimab. The venture firm has made a total of 12 investments across several industry categories including software, Internet and cleantech. -- P.B.

Photo courtesy of flickr user DigitalSextant through a Creative Commons license.

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