Kravis Investment Fund To Seek Millions (Not Billions)

It’s hard to believe that the girth of a fund associated with Henry Kravis these days could be measured in anything less than multiple billions.

But such is the case with the New York City Investment Fund, a $114 million private civic fund launched by the legendary co-founder of Kohlberg Kravis Roberts & Co. in 1996 to create employment opportunities for the poor in New York City. Its mandate also encompasses backing projects and businesses that expand and diversify the local economy.

Maria Gotsch, president and CEO of the fund, said that this fall the non-profit organization is likely to head out to try to secure another $5 million for the BioAccelerate NYC Prize. Launched two years ago with a $5 million allocation, the program is designed to help scientists get the results of their biomedical research on the road to becoming commercial products.

All told, the New York City Investment Fund has invested about $110 million, or most of what it’s raised to date, in more than 100 projects, Gotsch said. These include a combination of non-profit ventures as well as early-stage companies pursuing opportunities in cleantech, biosciences and financial services technology.

Not particularly attention-seeking, the fund stands as a reminder of the many charitable initiatives undertaken by private equity professionals and of the enduring links between the buyout and venture capital markets. Other board members include co-chairmen Russell L. Carson, general partner, Welsh, Carson, Anderson & Stowe, and Richard M. Cashin, managing partner, One Equity Partners.

Gotsch said the fund has so far achieved its goal of preserving principal, as well as returning enough to pay its own expenses; the corporate and individual investors, who have agreed to see their returns plowed back into new investments, have extended the term of the fund from its original 15 years to 45 years. Some 6,000 new jobs tied to the fund have been created, Gotsch said, not counting jobs created by companies after New York City Investment Fund exits them.

The BioAccelerate NYC Prize marks one of the fund’s more recent initiatives (along with the FinTech Innovation Lab, designed to give a leg up to financial technology start-ups). Gotsch said that discussions with venture capitalists had revealed that those specializing in health care and pharmaceuticals had migrated over time to later-stage deals, leaving less money to finance the early stages of drug commercialization. Meantime, investigation by the New York City Investment Fund showed that while New York City was among the top cities in generating biomedical research the state was home to relatively few biopharmaceutical companies.

As part of the BioAccelerate NYC Prize program, the New York City Investment Fund gives out what it calls “grants with participation” of up to $250,000 each. It awarded six such grants in the first year of the program, five in the second. Scientists spend the money over a 12 to 18 month period, and need to hit milestones along the way to secure the full amount. If the technology stalls, the money effectively becomes a grant, Gotsch said. However, if a sponsoring university eventually spins out the technology into a commercial product, then the New York City Investment Fund gets a slice of the royalties. On a portfolio basis, the fund is trying to preserve its initial $5 million allocation and generate a small return to pay for expenses.

One of the New York City Investment Fund’s biggest success stories also came in health care. Back in 1996, two inner-city hospitals, one in Queens, one in Brooklyn, set up a company called Royal Health Care to provide software and services to managed care companies. The fund made a $2 million investment in the company, which has gone on to create several hundred jobs in New York City, expand nationally, and generate close to $1 billion in annual revenues.

Want to get involved? Contact Gotsch at 212-493-7537.