Capital injection for new med tech firm

Mach Ventures is planning to raise a $150 million inaugural venture fund that will target early stage startups that are developing minimally invasive health care devices. The San Francisco-based firm was launched by the life sciences executive John Lonergan. He says that he plans to focus on making investments in startups with promising medical device technologies that can be quickly flipped to strategic acquirers.

Before launching the new firm, Lonergan co-founded CardioNow, a medical imaging startup backed by Fremont Ventures, Oakwood Medical Investors and Versant Ventures. He also founded Bio-Star Private Equity Fund, a $30 million investment vehicle focused on early stage life sciences.

Joining him at Mach Ventures is Michael Laufer, a former managing director at Menlo Ventures and the founder of several medical device companies, including VNUS Medical Technologies (Nasdaq: VNUS), which went public in October 2004.

Lonergan expects to hire another partner before the firm starts investing.

He’s marketing the fund to institutional LPs and anticipates closing the fund by the end of the year.

The new fund comes at a time when exit valuations on medical device startups are impressive. Consider Hologic’s (Nasdaq: HOLX) purchase in April of biopsy company Suros Surgical Systems in a cash and stock earn-outs deal worth $240 million. Suros, founded in 2000, raised $19 million in VC funding from River Cities Capital Funds, Sightline Partners and Morgan Stanley Venture Partners. The company reported $27 million in sales last year.

“The device sector is extremely attractive thanks to the lower risk profile and the quicker time to market,” says J. Carter McNabb of River Cities. Great premiums don’t hurt either.

But Lonergan says that many medical device investors are falling victim to their own success. He says that many venture firms are getting such good returns that they’re raising larger funds that no longer go after early stage deals. “They can’t write a check for under $10 million,” he says.