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Venture Investors is going all-in on healthcare with its latest venture fund.
Launched in 1982, Venture Investors (VI) is the oldest venture firm in Wisconsin, and one of the older VCs in the US. Historically, early-stage life sciences and healthcare startups have made up the majority of its investments, but it has also backed young companies in sectors such as software and alternative energy. No longer.
The firm’s sixth fund, a $75 million vehicle announced in early October, will focus exclusively on healthcare deals. The shift is notable on a local level because it means Wisconsin startups in enterprise software, consumer mobile apps, and other non-healthcare fields will have fewer funding options in their backyard, in a state that has few of them to begin with.
On a macro level, it’s another example of how some VC firms have narrowed their focus in recent years to play to their strengths and try to stand out in an increasingly crowded landscape. Other firms that have made similar moves include Atlas Venture in the Boston area, which spun out its tech investing arm (now known as Accomplice) to focus on life sciences.
VI managing director John Neis frames his firm’s strategy change as a logical decision based on the team’s strengths and past portfolio performance.
Venture Investors likes to back spinouts at major research universities, which often produce startups in biotech, medical devices, and other healthcare-related products. VI’s main offices are in Madison, WI, near the University of Wisconsin-Madison, and Ann Arbor, MI, home of the University of Michigan. The firm also recently opened an office in Milwaukee. (More on that in a minute.) VI’s team knows the life sciences and healthcare industries best and has developed stronger connections in those sectors with entrepreneurs, co-investors, and potential startup acquirers, Neis says.
“And all of that translated to better results,” he says in an interview. “We looked at our historical track record, and we did spectacularly well in healthcare and not as well everywhere else.”
Neis declined to share detailed data on VI’s returns on its investments. But he says eight of its portfolio companies were acquired or went public in deals valued at more than $250 million each. Those companies include Irvine, CA-based IntraLase, a laser eye surgery tech company that went public and was later acquired for $808 million in 2007 by Advanced Medical Optics; Third Wave Technologies, a Madison biotech sold to Hologic for $580 million in 2008; Madison-based medical device firm TomoTherapy, acquired for $277 million in 2011 by Accuray; and Madison DNA microarray maker NimbleGen Systems, bought for $272.5 million by Roche in 2007.
VI’s bets in other sectors include Alfalight, a Madison company that developed laser technology for military use and was acquired for a reported $1.3 million by Gooch & Housego; Silatronix, a Madison developer of advanced materials for batteries and other energy storage devices; and Nextt, a Madison-based private social networking app startup that shut down in 2014.
When asked if VI had trouble investing in tech and other non-healthcare sectors, Neis says “it’s just that we weren’t doing it as much, so we didn’t know it as well. All that translated to, the returns weren’t as strong for us.”
One of the other new developments at VI is the opening of a Milwaukee office, led by managing director David Arnstein, who lives in the area. Neis says the decision to open the new outpost was a result of several factors, including the “growing energy and enthusiasm for creating companies” in the Milwaukee area and the presence of one of VI’s new investors in the latest fund, Advocate Aurora, which operates one of the largest networks of hospitals and clinics in the country.
“We saw it as an opportunity to just be a little more hands-on [in Milwaukee] and be better-positioned to identify things as they were emerging,” Neis says.
Although Milwaukee doesn’t have a top-10 research university like Madison and Ann Arbor do, Neis is confident VI will be able to find a steady flow of quality companies there. He cites the research activity at Milwaukee-area higher education institutions such as the Medical College of Wisconsin, as well as the area’s track record in medical devices. VI’s current Milwaukee-area investments include TAI Diagnostics, developer of non-invasive tests to monitor the health of organ transplant recipients. TAI’s technology was licensed from the Medical College of Wisconsin.
It’s a common refrain, but Neis says the Wisconsin startup scene’s biggest challenge right now is a lack of locally based VC sources. The Badger State has seen a flurry of new early-stage venture firms in recent years, but the state still lacks venture funds of $50 million or more. Besides VI, others that have reached that level include Capital Midwest Fund, Baird Capital, and American Family Ventures; 4490 Ventures raised $49 million last year for its second fund. VI has around $275 million currently under management, Neis says.
“My hope is many of the funds that have come into being in recent years can post a track record of success and be able to raise larger second and third funds,” Neis says. “But right now, most of the funds are very small.”
He’d also like to see more institutional investors—think corporations, foundations, and family offices—put money into venture funds and startups in their backyards.
“If we just wait for somebody else to make that investment, it’s never going to happen,” he says. “If we who know the [local] opportunities best aren’t going to make the investment, then why should anybody else? There’s a huge signaling that’s involved.”