When opportunity knocks, answer the door.
That simple premise was all it took to convince RiverVest Venture Partners’ four founders that St. Louis was the best place to set up a seed- and early-stage venture capital shop focused on life sciences investments.
“Our focus plays to the regional opportunity,” said Mark Mendel, a founder and managing director with RiverVest. “RiverVest was founded partly to take advantage of the mismatch between the quality of life sciences [deals] in this region, and the lack of VCs paying attention to it.”
Indeed, St. Louis is home to Washington University, one of the nation’s top five medical schools, which is only one of the many outlets in the area that has the potential to produce a bevy of life sciences opportunities for willing investors, Mendel said.
And RiverVest is both ready and willing. The firm recently held a final close on its debut fund, an $89 million investment vehicle dedicated to financing medical device, biotechnology and specialty pharmaceutical plays, as well as companies that provide tools for drug discovery.
While it may seem as though RiverVest is attempting to time the market by closing its first fund at the same time investors are showing a renewed interest in the life sciences sector, nothing could be further from the truth, Mendel said.
“When we started RiverVest [in September 2000], life sciences was viewed as a contrarian place to make investments,” he added. “People viewed us as swimming against the tide.”
The firm’s focus also plays on its partners’ strengths and experience. Prior to joining RiverVest, Mendel headed up Arch Venture Partners’ New York office, where he focused on life sciences investments.
Additionally, RiverVest Co-Founder and Managing Director Jay Schmelter hails from Crescendo Venture Partners, where he also specialized in life sciences deals.
RiverVest Venture Fund I LP is also managed by Andrew Craig, the former chairman of NationsBank, and Tom Melzer, the former head of the Federal Reserve Bank of St. Louis.
On average, RiverVest I will pump between $3 million and $6 million into approximately 15 portfolio companies. The fund will likely be fully invested within three years, Mendel said.
To date, the fund has invested approximately $6.3 million in four transactions.
Last October, RiverVest contributed $2 million to a Series A financing for Overland Park, Kans.-based CyDex Inc., which is commercializing a patented drug formulation and delivery technology called Captisol.
RiverVest I’s portfolio also includes TissueLink Medical Inc. of Dover, N.H., which is commercializing surgical devices to seal tissue using a new radio frequency delivery technology; St. Louis-based Kereos, a developer of technology for site-targeted diagnostic imaging and drug delivery; and NexRay Inc., a Los Gatos, Calif.-based firm that is currently developing a digital x-ray fluoroscopy system to deliver better images while reducing radiation exposure.
The fund is backed by a cadre of individual and institutional limited partners. Its lead investor is a trust established by members of the McDonnell family, the founders of the McDonnell Douglas Corp. Additional backers include Bank of America Corp., Washington University, Saint Louis University and several entrepreneurs.
RiverVest has also been licensed as a small business investment company (SBIC) by the Small Business Administration.
Robyn Kurdek can be contacted at: Robyn.Kurdek@tfn.com