New Domain fund imminent

Domain Associates, a venture firm that primarily invests in early stage deals, has closed a $700 million seventh fund, PE Week has learned

Domain Associates VII out-sizes the firm’s $500 million sixth fund, raised in 2003, and its $464 million fifth fund, raised in 2000. Partner Robert More attributed the larger fund size to a surfeit of attractive investment opportunities. “The investment pace has been faster, both in getting into things and getting out of them,” he says.

More says the firm hasn’t changed its investment strategy. It will continue to invest in early stage life science startups. It raised a bigger fund because, “We were back [in the market] sooner than we would have liked,” More says.

Virtually all the limited partners from the firm’s sixth fund have returned for fund VII, More says. Investors in the firm’s previous funds have included Montagu Newhall Associates, The Notre Dame Endowment, Wilshire Associates Inc., Duke University Management and HarbourVest Partners. The firm has added at least one new limited partner, More says. He won’t say if the fund was over-subscribed, but did concede: “We were in a good position.”

As well Domain Associates should be. The firm saw five of its portfolio companies launch IPOs in 2006, and another stands ready in registration. Plus, two of its companies were acquired this year. But of the five IPOs done so far, four were trading below their offering prices last week.

Vanda Pharmaceuticals (Nasdaq: VNDA) went public at $10 a share on April 11, and was trading at $8.70 a share. Northstar Neuroscience (Nasdaq: NSTR) offered at $15 on May 5 and was below $13 a share. Novacea (Nasdaq: NOVC) offered at $6.50 on May 9, after its underwriters cut the spread from $11 to $13, and was trading at about $6 a share. Iomai Corp. (Nasdaq: IOMI) went out at $7 a share on Feb. 1, and was trading at just over $4.

The one bright star in the aftermarket has been Volcano Corp. (Nasdaq: VOLC), which makes intra-vascular ultrasound for imaging the heart. The stock was up to nearly $10 a share last week, compared to the $8 a share offering price.

But More is optimistic. “I hope that it’s a reflection of a more-sophisticated public market for biotech stocks,” he says. “For the last 20 years the window was either open or closed. I hope what we’re seeing is something that’s more selective. You’d like to see an environment where the good companies can get out and do well and the bad ones don’t.” —Alexander Haislip