Life Science & Biotech and Technology

Forums seek out diamonds in rough: Future Fund events link VCs with entrepreneurs

May 2, 2005

With $15 million to plow into early-stage companies, Indianapolis-based Pearl Street Venture Funds is one of several venture capital firms searching for promising technologies to fortify with a cash infusion.

In return, the investors hope to stumble upon the next Eli Lilly and Co., or at the very least, an enterprise that eventually becomes profitable and attractive enough for acquisition.

The process of locating such diamonds in the rough, however, can be arduous and time-consuming. To that end, the Indiana Future Fund is hoping to link venture capitalists like Pearl Street with entrepreneurs through a series of forums it is conducting this year.

The $73 million raised for the Future Fund has been invested in the six venture capital firms composing the fund, including Pearl Street. Those venture capitalists, in turn, are expected to invest at least 60 percent of the cash in Indiana-based biotech companies. Credit Suisse First Boston manages the fund for the BioCrossroads life sciences initiative and has authority over all its investments.

In the year since BioCrossroads selected the venture capital firms that would invest the $73 million, the amount of activity is unclear.

Bernard Yancovich, vice president of CSFB, said as a private-investment vehicle, the Future Fund is bound by confidentiality restrictions and cannot release investment details.

IBJ Daily reported in April no new bioscience investment was made in Indiana, according to an analysis by Clevelandbased BioEnterprise, an initiative that supports the growth of bioscience companies.

Pearl Street Managing Director Tim Tichenor said his firm has yet to make an investment but is encouraged by what he has seen so far.

"The deal activity-companies coming to us and spending time with us-is meeting our expectations," he said. "There's a lot of good innovation out there, and that's an encouraging message."

Tichenor attended an April 12 Future Fund forum at Purdue University. Others are scheduled for June 7 at Indiana University, for either August or September in Warsaw, and October in Fort Wayne.

Warsaw was chosen because of its strong orthopedics base supported by Zimmer Holdings Inc. and Fort Wayne because of its life-sciences incubator started by Dr. Mike Mirro, said David Johnson, executive director of BioCrossroads.

Potential is there

While the Future Fund's venture capital firms are not obligated to invest all their money in Indiana companies, Johnson is confident the potential is there. He said the forums are another means to foster investment activity in the state.

"What the Future Fund is trying to do is get around the state to expose venture capitalists, who are working with the fund, to the communities and the potential opportunities," Johnson said. "We think there is enough opportunity to invest 100 percent in Indiana, because there is so much going on."

Besides Pearl Street, a partnership between locally based Barnard Associates Inc. and Los Angeles-based Coastview Capital LLC, five other venture capital firms make up the Future Fund: San Francisco-based Burrill & Co.; North Carolinabased AM Pappas & Associates LLC; REI Ventures, a collaboration between EDF Ventures in Michigan and Rose Hulman Ventures; locally based Spring Mill Ventures; and Cincinnati-based Triathlon Venture Partners.

Most venture funds are designed to operate on a seven- to 10-year cycle. The first three to four years are normally spent investing; the remainder is dedicated to helping companies commercialize their products.

Like Pearl Street, AM Pappas in Research Triangle Park, N.C., has yet to invest in an Indiana company. Geoffrey Erickson, a principal at AM Pappas, also attended the Purdue event and thinks Indiana's bioscience initiative stacks up well to others. The venture capital firm has investments nationwide.

"There are a lot of strong, robust technologies there that I think could turn into successful companies," he said.

Promising technology

At the West Lafayette event, venture capitalists heard presentations from four life sciences companies with ties to the Purdue Research Park. Among those was Andara Life Science Inc., which is commercializing a Purdue treatment for central nervous system injury and disease that has shown promise for patients with paralysis during clinical trials at the Indiana University School of Medicine.

Mark Carney, Andara's president and CEO, declined to divulge whether he is searching for investors. Many entrepreneurs in Carney's position do not want to act as though they are publicly soliciting funds for fear of jeopardizing a deal. But Carney said the forums should showcase to venture capitalists what the state can offer.

"I don't think there is any question there is significant intellectual property worthy of commercialization coming out of our research organizations," Carney said. "The real question is how to identify management talent and get portfolios identified, and develop and build your capital in order to succeed with your business plan. To me, those are the challenges."

Purdue's research park supports more than 100 companies, 70 of which are technology-based. Joe Hornett, senior vice president and treasurer of the Purdue Research Foundation, oversees the daily operations of the park and organized the entrepreneurial forum there.

He thinks the event made fund administrators aware that there are discoveries in the state worthy of consideration.

"A lot of people believe that we are trying to build a life-sciences culture or cluster in the state," Hornett said. "The fact of the matter is that we already have one. There is no shortage of ideas coming out of that cluster."

QuadraSpec, which participated in the entrepreneurial forum, is one company that is showing potential. Its plan to commercialize its protein-diagnostics technology won a national competition of bioscience startups at Purdue on April 20.

QuadraSpec will receive $80,000 in cash and business services after President and CEO Chad Barden raised $1.5 million from investors late last year to get the company up and running.

He said he did not participate in the forum to solicit cash but to show Future Fund directors that there are companies in Indiana worthy of investment. EDS Ventures invested a small amount in QuadraSpec, some of which came from Future Fund money, Barden said.

With a year of operation under its belt, the Future Fund is ready to enter the next phase, Johnson said.

"Now it's time for the venture firms to get out and start deploying their funds," he said. "They're trying to find the best matches of venture dollars and good possible deals."

If the forums can help instigate some of that activity, they have served their purpose, participants agreed.
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