New funds target life sciences: MidPoint concentrates on agricultural technology; Heron aims at broader market

May 1, 2006

Two new locally based venture capital funds believe Indiana is ripe with opportunity for biotech deals.

With $20 million under management, Heron Capital LLC is broadly focused on the whole Hoosier life sciences market. Attempting to raise $30 million, the Mid-Point Food & Ag Fund LP has a narrower concentration: high-technology related to farming and nutrition.

"We're very excited about our prospects," said Heron Managing Director Greg Maurer. "We have a number of deals in the hopper, some of which are very close to a term sheet."

Heron closed on its $20 million on Feb. 1. Before raising the fund, Maurer had worked for the National Bank of Indianapolis, focusing on real estate, branch expansion and loan administration. He also worked as an attorney with the Chicago-based law firm Schiff Hardin LLP.

According to Heron's Web site, his practice centered on mergers and acquisitions, venture financing and private placements. Maurer holds a law degree from St. Louisbased Washington University and an undergraduate degree in finance and international business from Indiana University.

His father is Michael S. Maurer, Indiana's secretary of commerce. Michael S. Maurer is also co-owner of IBJ Corp., as well as of the National Bank of Indianapolis. Maurer said his father has deliberately remained uninvolved in the formation and management of Heron.

"Until my dad has completed his tour of duty with the state of Indiana, we've set up a wall where we don't discuss any deals," Maurer said. "We want to avoid any chance that we'll have a conflict with any company also seeking money from the state. So we avoid that issue entirely."

Heron has an advisory board that includes six life sciences industry experts. Maurer said Heron will consider any deal in the life sciences sector. Heron will likely make one to two investments per year, he said, probably between $250,000 and $2 million each. But Heron's deals won't be limited by Indiana state lines.

"We're just looking to acquire investments that make sense for the fund and our limited partners. If that's in oncology or neurology, so be it," Maurer said. "I want to do every good deal coming out of the state of Indiana. At this point, that probably won't fill my portfolio, so I'll look elsewhere. The focus is the Midwest."

Heron's investors are a group of wealthy local individuals, Maurer said. There are no institutional investors in the Heron fund, he said.

"I'm going to decline to name any of them specifically," he said. "I'll just suggest that if I did mention them specifically, you'd recognize a lot of their names."

Since he began prospecting for deals last summer, Maurer said, Heron will most likely be able to begin making investments this year.

The MidPoint Food and Ag Fund is not quite as far along in its development. Announced Feb. 8, MidPoint has raised $3.5 million so far through loans from the Indiana Department of Agriculture and the Indiana Development Finance Authority. Its managing director, Ron Meeusen, said only four other North American venture capital funds have ever concentrated on food and agriculture.

"Which shows you how wide open that space is for investment," he said.

Meeusen, a one-time Dow Agro-Sciences executive and BioCrossroads' former chief science officer, said it will likely take MidPoint another 18 months to reach its $30 million target. The idea for the MidPoint fund originally came from a research report BioCrossroads commissioned on how to best leverage Indiana's vast base of agricultural assets.

Once fund raising is complete, Mid-Point hopes to commercialize university research and orphan technologies from large food companies. The food and agriculture industry is ripe with high-tech opportunities, he said.

For example, Meeusen said, the fermentation process at dry corn ethanol plants produces a great deal of leftover material that could be transformed into food for cattle. Other potential areas of development include food safety, animal health and crop genetics.

Meeusen expects large agriculture companies to be interested in the technologies MidPoint develops.

"Like the pharmaceutical industry, they're beginning to realize they can't supply their pipelines internally," he said. "They really do need to acquire businesses and products from outside to grow."

Indiana Department of Agriculture Director Andy Miller said MidPoint will be required to repay its loans within two years, at a 1-percent interest rate. He said the state previously distributed the money used to underwrite the loans as agricultural grants.

"We wanted to generate jobs and economic development, and in a way where the state may actually see some of its money back," Miller said. "If you look at how the funds were spent in the past, this is one of the more progressive and measurable ways of investing these dollars."

Some may view agriculture as an industry of the past. But Miller said its best days are still ahead.

"Agriculture is a foundation of the economy for this state. If you look at the future, it's in the midst of a tremendous revolution. Breakthrough innovation will change what we produce and how we produce the foods we eat," Miller said. "Agriculture is not an old industry, but an up-and-coming revitalized industry. Between this and building ethanol plants all over the state, we're staying pretty busy."
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