Friday, April 04, 2008

Venture Round: Weekly Wrap Up

Remain calm. All is...

Well, not so good.

The start of April means one thing and one thing only. Well, okay actually it means several things. But for the purpose of this item, the start of April presents us with the first first chance to quantify how good a year we're having or not having.

That's right. It's first quarter numbers times.

It's too soon for venture capital figures. Those won't be out for a few weeks. But venture trackers Dow Jones and Thomson Financial both dutifully released their first quarter figures for exits in the industry. And we'll release ours from our Strategic Transactions Database, too -- in this post.

We'll skip over IPOs for this particular post. Not much to report there anyway. Let's zero right in on mergers and acquisitions since they rely less upon the whims of Wall Street...

To summarize, the first quarter stunk.

Dow Jones' Venturesource said that 14 VC-backed health-care companies got sold in the first quarter for about $1.1 billion, off 42% from the $1.9 billion total during the first three months of 2007.

Thomson identified only five acquisition of venture-backed companies. Three of the five deals came with disclosed prices that amounted to $229 million. The finally dollar tally didn't compare too well to the first quarter of 2007, when four life sciences companies were acquired for $1 billion.

And our Strategic Transactions Database reports a similarly disappointing drop -- but very different numbers. We include all privately-held companies, including those that never raised venture capital. These figures include acquisitions of some companies outside the US as well as some private-equity plays. For example, last year's largest deal was the $3.6 billion acquisition of Molnlycke Health Care by Investors AB and Morgan Stanley Principal Investments.

In our broader sampling of the first quarter, 27 privately held companies sold for $1.7 billion. Cardinal Health's acquisition of Enturia for $490 million topped the list as the largest investment. Better than what others are reporting, no doubt. But those figures compare less than favorably to the 35 companies acquired in the first quarter of last year for $8.7 billion.

Yes, that's a pretty significant drop. But, it's only one quarter. Remain calm. All might be well. (You'll have to wait until the six-minute mark to see the scene. Still, it's funny.)


VentureWire this week reported that Open Prairie Ventures is in the midst of raising a $125 million fund. Open Prairie is one of those Midwest firms that concentrates on the regions most VCs see through plane windows.

VCs often overstate the opportunities presented in these regions but Open Prairie certainly nailed a good one with its $1 million-plus investment in TomoTherapy Inc., the innovative imaging company that went public last week.

While we reported in last month's Start-Up that a few TomoTherapy investors have started to cash out, Open Prairie didn't make our list because they haven't had to file a Form-4.

But the firm has been selling. Between shares sold in the company's May IPO and a secondary in November, Open Prairie scored more than $16 million. On top of that, Open Praire still holds 1.4 million shares in Tomotherapy, which are worth roughly $20 million at the current stock price.

In an interview with IN VIVO Blog, partner Jim Schultz deemed the TomoTherapy investment a "fund maker." It's hard to argue with the term since it returned almost all the capital of Open Prairie's first $40 million fund.

Schultz confirmed that Open Prairie has closed on $20 million of a $140 million. (Ah, we do miss the days when all VCs spoke as freely about their fund raising efforts.) Open Prairie intends to invest 40% of the new fund into health-care companies, with a focus on those that include an element of information technology as well as those life sciences companies targeting the agricultural industries.


Here's another one of those non-coastal VC efforts.


We'd be remiss if we didn't identify other investors who have sold off their shares in TomoTherapy's IPO and secondary, so let's present our SEC Documents of the Week. In addition to Open Prairie, Venture Investors, Avalon Technology, The Endeavor Group, Ascension Health Ventures and Wisconsin Alumni Research Foundation sold off more than $24 million in Tomotherapy shares during the IPO, according to that S-1.

Meanwhile, those groups plus the Mayo Foundation, Sunshine Summit, State of Wisconsin Investment Board and Robert W. Baird & Co. Inc. brought in more than $133 million by selling shares through a secondary offering last fall, according to the S-1.


Two stent companies recorded capital this week, clearly showing venture interest remains strong in the devices.

First, CardioMind Inc. drew down $22 million, the second tranche of a $33 million financing it raised last year. The capital came after the company hit the milestone of instituting its first-in-man trials, aka Care II. Then, Tryton Medical Inc., secured a $14 million Series C to help pay for development of its bifurcated stent.

“We’re still bullish in the drug-eluting stent market,” says Hank Plain, general partner of Morgenthaler Ventures, who helped start stent-maker Xtent Inc., a company we wrote about recently in IN VIVO the magazine.

Look for more on where VCs are playing their stent bets in the April issue of START-UP.


Finally, Highland Capital once again is running a pretty neat program for budding entrepreneurs. The bi-coastal venture firm is opening up its offices to a few select team of individuals with business ideas that need vetting. Winners get capital, use of Highland's offices and access to senior partners. In return, Highland asks for an opportunity to invest in any ventures that raise capital within six months. A write-up of the first program, which Highland ran last year, suggests an IT-leaning, but no doubt Highland would welcome opportunities in life sciences. Thanks to PE Wire for the tip.)


As always, we welcome your comments. If you have any private suggestions, comments or care to know why I'm worried about my rotisserie baseball team email me here.

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