Banks and corporate venture groups have had little to cheer about, having scaled back their venture capital activity in the last few years.
But, in a signal that the health care and life sciences markets are robust enough to bring some players back into venture capital, a new fund has been born from a marriage of a bank and a corporate venture group. Commerce Bancorp (NYSE: CBH) joined with Barr Ventures, the venture and development unit of Barr Pharmaceuticals (NYSE: BRL) to launch Commerce Health Ventures.
The fund, which is based in King of Prussia, Pa., raised $25 million thus far. Commerce Bancorp invested $10 million and Barr Pharmaceuticals invested $15 million.
The fund has a goal of $150 million and partners are now approaching potential LPs (the fund’s PPM was printed up last week). The fund expects to have its final close before the end of 2004.
Robert Falese, Commerce Bank’s chief lending officer, says he expects to count major health care institutions and pharmaceutical companies among the fund’s limiteds, as well as traditional LPs, such as pension funds and endowments.
The new fund shares three of its partners with NewSpring Ventures, a venture firm in King of Prussia. Three other partners are located in New York, and Commerce Health Ventures plans to set up an office in New Jersey by the end of the year.
GNYHA Ventures, which operates and develops businesses for the Greater New York Hospital Association, will assist the fund in sourcing deals. Lee Perlman, president of GNYHA Ventures, says that hospitals are great at discovering new medical technologies but are ill equipped to fund startups to turn such advances into sustaining businesses.
“If we can develop new technology and help patients by bringing these products tot he marketplace that’s a good thing,” Perlman says.
The fund will divide its deals equally between life science and health care services. The major health care sectors that the fund will focus on are the central nervous system, diabetes, obesity, oncology and reproductive health.
The fund will invest in companies that are based between Boston and Washington D.C., which is roughly the same scope of Commerce Bancorp’s operations. The fund is expected to have a 10-year life and its investments will fall in the $2 million to $10 million range.
The new fund has already closed one deal. Commerce Health Ventures contributed $1 million to a $4 million investment in Scandius BioMedical, a Littleton, Mass.-based developer of surgical instruments that specializes in treating athletic knee injuries. Commerce Health co-led the deal with KBL Healthcare Ventures.
In addition, Commerce Health has more deals in the pipeline, but the number of companies it funds in 2004 will depend on how much it raises, says Joseph Williamson, a managing partner with the new fund and former president and CEO of venture-backed Brandywine Senior Care.
Although 2004 promises to be an active one for medical device investments, the data collected so far does not show 2003 being an up year for the sector. The first three quarters of 2003 saw slightly over $1 billion invested in medical devices, compared to $1.4 billion invested in the sector for the first three quarters of 2002, according to Thomson Venture Economics (publisher of PE Week).