Biotech leaders consider investment fund

Houston Business Journal

The creation of a life sciences investment fund is in the works. The CEOs of Houston”s leading biotech companies could join forces in a unique coalition to provide both the funding and fundamentals for the new venture.

Details have yet to be finalized, but industry observers say this is just the sort of catalyst Houston needs to become a hotbed, for biotech development.

Lloyd Bentsen III, an executive of Triad Ventures and chairman of the Houston Technology Center, is one of the fund”s organizers. He says he”s spent a lot of time studying the feasibility of such a fund, but feels like it”s too soon to discuss it. “We”re at the embryonic stages,” Bentsen says. “There is really nothing tangible at this point in time.”

Nancy Chang, president of Tanox Inc., is involved with the new fund, but says talking about it would be premature.

David McWilliams, president and CEO of Texas Biotechnology Corp., says initial discussions about the fund involve CEOs of local biotech companies investing money in the venture, as well as serving in an advisory capacity.

The thinking is that knowledgeable biotech professionals can help sift through the technologies and business plans, and they may be able to advise some early-stage companies, he says.

McWilliams, who sits on the board of the Houston Technology Center, says Bentsen believes that if $2 million can be raised from local CEOs, 10 times that amount could be raised from outside investors, and the fund could eventually raise between $25 million and $50 million.

“He thought this was an interesting approach to raising a fund,” says McWilliams.

Bentsen has plenty of experience raising and investing capital through Houston-based Triad Ventures.

Bentsen is founder and general partner of its AM Fund – a $15 million venture fund that invests in early stage, high technology companies in the Texas region. The fund traditionally invests $200,000 to $400,000 in engineering, communications, medical, biomedical and software companies.

Bentsen also is co-founder and general partner of Triad Ventures Limited, a fund that invests in Texas-based emerging growth companies.

Biotech funds have become more popular recently. At the same time, however, venture capitalists are having more trouble raising money.

Two hundred new venture capital funds, not including corporate funds, were announced in 2001, with commitments of $55 billion, according to New York-based VentureWire. The figure represents a decrease from 2000, when 250 firms announced closings of $70 billion.

Of the 200 funds created last year, 23 are exclusively investing in biotechnology, medical devices, health care and related technology, the study shows.

McWilliams says he has not yet been asked to invest money in the fledgling fund. He wonders how the fundraisers will fare with today”s economic conditions.

“With all the downturn, I don”t know if it”s a reasonable time to raise the money,” he says. “The financial commitments were reasonably sizable.”


Biotech CEOs may gain an advantage by being involved in a fund like this. McWilliams says they may get first crack at a new technology. And research conducted by the fund could help determine if a start-up might be an acquisition target for one of the existing companies.

“You would get some potentially complementary technologies earlier in the process,” McWilliams says. “It can take a fair amount of effort to make a determination as to whether or not they”re going to be useful.”

Tech experts agree that a biotech fund would definitely benefit the city of Houston.

Paul Frison, president and CEO of the Houston Technology Center, says collaboration among the biotech community is a plus. The HTC is now having quarterly dinners for life sciences professionals, giving them a chance to discuss common interests and new ways to work together.

Frison says he thinks the biotech fund, a result of that collaboration, will come to fruition.

Dallas Anderson, president and CEO of Micromed Technology Inc., says it”s time to create another biotech fund, despite the difficult economy.

“You need to have incubators, and you need to have funds available,” Anderson says. “I think it”s a good idea.” Michael Cobb, who specializes in biotech and pharmaceutical recruiting, says local and regional biotech funds are an important way to attract talented people to the region because start-up companies will follow the money.

“It”s the only way you can get them,” says Cobb, a principal with Cobb and Co. in Dallas. “If you don”t have guys who are willing to put up a lot of money, you don”t have an industry.”

But before Bentsen can line up the money, he says he”s doing his homework by talking to a variety of people involved in life sciences.

“We”ve put a lot of effort in it, to date, to make sure we understand what the community needs and what will inspire or involve the life sciences CEOs,” Bentsen says.

“We want it to be done right. That”s really the bottom line.”