Safeguard Scientifics (NYSE: SFE) has long been known as a tech investor, but the Wayne, Penn.-based private equity firm has broken into the life sciences space in the last few years. President and CEO Peter Boni, who served as infantry officer in a special operations unit in the Vietnam War, has led Safeguard for two years. He recently slowed down long enough for PE Week Managing Editor Alastair Goldfisher to ask him 5 questions.
Q: As a publicly traded investor, what advantages do you have over venture firms or private equity investors?
We view ourselves as neither a venture capital firm nor a private equity company. We don’t play as early as the venture capitalist, and we don’t play as late as the private equity community. We’re somewhat of a ‘tweener.’
From the entrepreneur’s vantage point, we’re not forced to do a premature exit to return capital to limited partners, so that we can raise a new fund every three years. When we have an exit, that money is ‘evergreened’ on our balance sheet. So we’re self-funded. There’s a lot of patience built into our model which enables entrepreneurs to build their businesses.
Q: The firm was known primarily as a tech investor for a long time. After the Internet boom, you became more of a life sciences investor. What’s the plan going forward?
There have been many iterations of Safeguard over its 50-year history. The company started out supporting manufacturing, then technology and then Internet-based companies. Today, our capital placement in technology matches capital deployment in life sciences companies. The countercyclical nature of these industries offers balance within our holdings. Ultimately, our model tends to be 50/50 of technology and life science.
Q: You invest in a mix of early and growth companies. We’ve noticed more venture firms raising growth funds. How does this affect you?
A: Again, because Safeguard is a public company, we’re not under time-to-exit pressure, so we can patiently proceed at the right pace to build long-term value.
So we are not specifically focused on just early stage or late stage, as demonstrated by our recent transactions. We prefer to partner with technology and life sciences partner companies in large or growing markets throughout the United States and Canada that possess competitive advantages, such as proprietary technology, intellectual property or other differentiators that act as barriers to entry for other companies.
Q: The IPO market has picked up this year. What’s your outlook of the exit market?
Exit trends tend to be about 90% M&A and 10% through IPO. I expect the exits that Safeguard realizes will reflect that same trend.
Q: What can you say about your own company’s exits?
Safeguard realized $200 million of proceeds through a variety of exits since I joined Safeguard in August 2005 that reflect the sale of partner companies or the divestiture of a piece of a partner company.
Our most notable exit was with Mantas Inc., an innovative behavior detection software company. Safeguard sold its 88% stake in the company to i-flex Solutions, a subsidiary of Oracle Corp., for $112.8 million in late 2006. We also realized value from the exits or sales of Alliance Consulting Group, Clarient, Garage.com, Laureate Pharma and Traffic.com, among others.
Sales may take the form of privately negotiated sales of securities or assets, public offerings of partner company securities. Our target return is 3X to 5X our capital.