After 35 years of investing in software and communications companies, the Sprout Group will invest only in health care deals going forward, marking a permanent shift away from its longtime investment strategy.
Pending approval from its limited partners, the Credit Suisse First Boston private equity affiliate will spin out its health care group to form a new firm, Sprout Healthcare Ventures (SHV), says a Sprout general partner.
SHV plans to begin fund-raising in mid-2004 with a target to raise between $250 million and $400 million. CSFB will be a limited and a general partner in the new fund.
At the same time, Sprout will reduce the capital managed by its vintage year 2000 fund – $1.44 billion Sprout IX – by 25% to $1.08 billion. That fund, currently 80% invested, will continue to support its portfolio of IT and health care companies. New investments out of Sprout IX will be health care investments.
The firm also plans to cut the management fee on Sprout VIII from 2% to 1%. That fund is fully invested.
The switch to health care comes at a time when investment in life sciences is gaining fervor. The American Stock Exchange’s Biotech Index has risen by more than 30% for the year. In the third quarter of 2003, the pharmaceutical and biotech industries received the second and third most VC disbursements, respectively, behind computer software. And several venture-backed biotech companies have launched IPOs in the past month with several more filed and ready to go. But Sprout Group says the change is more a result from a declining IT market.
“We don’t see the rate of IT investment picking up anytime soon,” says Phillippe Chambon, a general partner with Sprout Group. “We began a review of where we stood this summer and there were too many differences between the health care and the IT portfolios.” More than 60% of Sprout IX’s portfolio sits in health care deals, while Sprout VIII, a $750 fund raised in 1998, was only 20% invested in health care.
Chambon will manage the new health care firm alongside Jeani Delagardelle and Kathy Laporte.
The team will invest in health care IT, late-stage biopharmaceutical companies, early-stage medical device companies and in lab devices and services across stages. Last week Sprout Group led a $43 million investment in Auxilium Pharmaceuticals of Norristown, Pa.
The investment came from Sprout Group’s current fund.
Sprout Group’s IT group, meanwhile, will stay to manage the existing portfolio. Keith Geeslin, the head of Sprout’s IT practice, is to retire. Partners Stephen Diamond, Robert Finzi and Alex Rosen are also being left behind.
Sprout Group’s active portfolio includes 85 companies worth about $1 billion. Limited partners in Sprout Group have included AIG, Brinson Partners, The Common Fund, Equitable Life and Toronto Dominion Bank, as well as pension funds from the states of Michigan, Colorado and Washington.
All changes could be in place by Jan. 1.
Email Carolina Braunschweig