VC firm looking for biotech deals
A North Carolina venture capital heavyweight has sent an investment scout to Atlanta to ferret out Georgia's most promising life sciences deals -- and lined his pockets with $85 million.
With the flow of venture capital and angel investment money now slowed to a trickle in Georgia, Research Triangle Park, N.C.-based Aurora Funds Inc., and new local liaison Doug Gooding, could provide an oasis for biotech startups searching for that critical first round of funding.
Aurora, which manages more than $155 million spread over four venture funds, recently raised $85 million -- $10 million more than it originally sought to raise.
A sizable portion of that fund is expected to be invested in life sciences companies in the Southeast, said Gooding, a principal with Aurora who formerly led business development at Paradigm Genetics in Research Triangle Park and managed a group of research associates at Incyte Pharmaceuticals in Palo Alto, Calif.
In North Carolina, Aurora has slowly gained a reputation for leading key seed funding rounds in the life sciences field, sifting through one promising company proposal after another to find the potential diamond-in-the-rough financial hit.
"They're big players in Research Triangle," said Michael Constantino, a partner with Ernst & Young LLP and head of the firm's Southeast life sciences division. "They've been involved in most of the big deals that have happened in our neck of the woods and they have a good track record of working with early startups. That's their sweet spot."
Aurora has made seven investments to date with the new fund, five of them in life sciences companies, including Regado Biosciences Inc., a spin-out of Duke University that is developing regulatable therapeutics, which can help doctors control the harmful side effects of vital drugs such as blood thinners.
Aurora has worked closely with the company on business development and provided the initial seed funding. Now Aurora is looking to raise an additional $7 million to $10 million for the company by the end of the first quarter.
"We will lead on that investment," Gooding said. "That's the kind of model we are looking to re-create in Atlanta."
There are opportunities to be found in Atlanta, said Gooding, despite Atlanta's lack of what the life sciences industry likes to call "critical mass," where venture capital firms, a healthy pipeline of startups, a smattering of big-name public companies and a pool of top-level management converge.
Already the firm has trained its eye on local universities, including Emory University, where the number of biotech startups has been growing while efforts around technology transfer -- getting technology from the lab to the commercial market -- have increased.
"We still have quite a fair number of deals to do," Gooding said. "We are really only 10 percent committed and are looking for new investments."
Gooding, who already lives part time in Atlanta, will now serve as Aurora's official local liaison for deals, and plans to set up more permanent offices in the city.
Aurora's $85 million would likely fund only about 15 companies, Constantino said. "You've got to have enough held back, the dry powder they call it, to get the company to the next stage, something back in the armory to finish the job."
But the news is good for life sciences and medical device researchers and entrepreneurs in Georgia. Any investment activity can shine a bright light on the state and metro area and, if the deals begin to flow, capture the attention of other investors, Constantino said.
One of the biggest issues for Georgia has been the lack of new venture capital money and an active investment climate, he said. But that may be changing.
Dormant for some time as a startup life sciences deal-maker, Atlanta venture capital firm Alliance Technology Ventures says it likely will make two new investments in the next six months and plans to raise a new fund in 2004 that will be the same size or larger than its last $150 million fund.
"We do have some funds available for new investments, but are reaching the end of the fund," said Alliance Technology Ventures' founder and managing general partner, Michael Henos, who has spent more of his time outside the state in the last year.
Alliance has played a key role in getting Georgia's life sciences industry on the map, seeding two of the state's most high-profile players in the field, AtheroGenics Inc. (Nasdaq: AGIX) and Inhibitex Inc. Alliance splits most of its investment activity between technology and life sciences and has been making mostly follow-on investments of late.
In April, Inhibitex completed a $45 million series-D round of financing -- one of the Southeast's largest on record for a life sciences company. But securing follow-on investments for seeded companies has sometimes proved difficult, Henos said.
"Atlanta is still an emerging [life sciences city]," Henos said. "While we have a couple of models of success that are just now getting recognized, there is not a long history, and putting together subsequent rounds of financing has become problematic."
Other investment firms outside of Georgia have sent scouts out before to set up shop here, but often nothing came of it and they left, Henos added.
Gooding said he believes the deals are here.
"There are a lot of reasons why this would be a hot place and why it is not," Gooding said. "It's a combination of things. A good part of it is a lack of on-the-ground early-stage capital."
Cordova Ventures is playing a significantly diminished role, Noro-Moseley Partners is doing mostly late-stage investments and Alliance has not been solely focused on Atlanta, Gooding said.
"It's still an open question whether it makes sense to be focused on Atlanta or Georgia in general," Gooding said. "Right now, having spent some time there, there are some good opportunities worth spending some time trying to understand."
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