Prospect Venture Partners II



Pension Fund Makes Big Investment in Biotech

Silicon Valley Business Ink

Bay Area biotech venture capitalists just got a $235 million shot in the arm from the California Public Employees Retirement System. In June CalPERS unveiled its $500 million California Biotechnology Program, a new venture for the state employees' pension fund, and recently announced the firms that will receive the first round of $285 million. More than 80 percent of that will go to three area venture capital firms and a university. 

The pension fund was looking for one strategic partner to deploy the money, but it tossed that idea out.  "No one candidate could effectively distribute the amount of money we had allocated," says Patricia Macht, chief of public affairs for CalPERS. So the pension fund chose five firms to invest the initial disbursement. 

Prospect Venture Partners, a Palo Alto-based venture capital firm specializing in life sciences, and MPM Biotech Crossover Fund LP, a South San Francisco health care investment firm, received the lion's share of the investment, with $100 million each. That's a significant chunk of change for MPM, which manages $830 million in committed capital. Ashley Ledbetter, a principal with MPM declined to discuss the firm's strategy for investing the new capital.

Biotech is a young industry. Its U.S. market capitalization is $350 billion, basically the size of two large pharmaceutical companies, Ledbetter says. "But biotech growth opportunity remains outstanding," she added. In early 2001 CalPERS expects to invest the remainder of the $500 million fund in other biotechnology ventures at universities, institutions and companies. Although it's relatively new to biotech, the pension fund wants to become the "investor of choice" for the industry. "When top researchers are looking for investment capital, we want them to first think of CalPERS," says Macht. 

CalPERS has spread its eggs into many baskets. EuclidSR Partners of New York was the only out-of-state firm CalPERS chose. Steven Reidy, one of the firm's nine general partners, reckons CalPERS chose the firm based on its strong ties to the pharmaceutical industry and its talent for helping create new biotech companies that develop products and technologies to help large pharmaceutical identify potential new drugs. 

The vast increase in biotech information, much of it due to the mapping of the human genome this year, is overwhelming pharmaceutical companies. They can't fund all the viable projects on the table and have put some on the back burner. Euclid can help smaller biotechs license that technology and develop it, Reidy says. With so many opportunities in biotech, the industry needs the deep pockets CalPERS can provide. With assets of about $170 billion, it is the largest public pension fund in the U.S. and figures it's one of the best sources of capital for biotechs because it is willing to invest large amounts of cash and wait for long-term returns. 

And it's confident those returns will come eventually. Patient biotech investors have enjoyed the rewards. The compound annual growth rate for the Nasdaq biotech index over the last five years was 40 percent, compared with 23 percent for the S&P 500 Index, CalPERS reports. 



Talent Migration Continuing to Aid Health Care Firms

Venture Capital & Health Care Journal

Prospect Venture Partners, Palo Alto, has created a stir among health care investors by landing Dr. Russell C. Hirsch and Dr. James B. Tananbaum as general partners. The appointments do more than confirm that Prospect Venture Partners' star is rising. They also illustrate how health care investors are benefiting from other venture capital firms' move away from the sector.

Dr. Hirsch, formerly a medical and scientific researcher, joined Mayfield Fund, Menlo Park, CA as a health care investor in 1992. But the firm, which had been a founding investor in biotech stalwarts like Millennium Pharmaceuticals, moved Dr. Hirsch to its e-commerce team when it stopped making health care investments in 1999. Standing in the lobby of the St. Francis Westin Hotel in San Francisco last month among other attendees of a health care investing conference, Dr. Hirsch said he felt "like a pig in mud" to be back in the health care field.

Mayfield Fund, like fellow Menlo Park firm, Menlo Ventures, isn't actively seeking to make new health care investments. However, both firms insist that they would invest in health care if the right company came along. Unlike Dr. Hirsch, Dr. Tananbaum never actually left the field. A former general partner of Sierra Ventures, Menlo Park, Dr. Tananbaum left the firm several years ago to help form Advanced Medicine, a biotech company that in 1999 raised $159 million from investors including Microsoft  Chairman Bill Gates and Sierra Ventures itself. 

In joining a health care-only firm, [Prospect Venture Partners with Alex Barkas PhD and David Schnell, MD], Dr. Hirsch and Dr. Tananbaum followed a well-worn path....

Prospect Venture Partners is now seeking to raise a fund that should be considerably larger than its $100 million debut partnership. California Public Employees’ Retirement System already has committed $100 million to the follow-up fund.

Prospect Venture Partners was founded as a health care-only investor in 1997 by David Schnell and Alexander E. Barkas, both formerly of Kleiner, Perkins, Caufield & Byers, another Sand Hill Road giant. 

Prospect Venture Partners Closes $500M Fund

Prospect Venture Partners

PALO ALTO, Calif., July 30 /PRNewswire/ -- Prospect Venture Partners, a venture capital firm dedicated to investing in medical technology and life science companies, today announced the closing of its second fund, Prospect Venture Partners II. The oversubscribed fund was closed at $500 million.

The fund’s four Managing Partners are Alex Barkas, Ph.D., Russell Hirsch, M.D., Ph.D., David Schnell, M.D. and Jim Tananbaum, M.D., who collectively bring over 30 years of previous venture capital experience to Prospect Venture Partners. The partners have strong investment track records, having led investments in over 45 health care and biomedical companies from 1992 to 2001. In addition, the partners have significant biomedical industry operating experience, successful entrepreneurial track records, and extensive biomedical research training from leading institutions including Harvard Medical School, Memorial Sloan Kettering Cancer Center, UCSF Medical School and the Whitehead Institute/MIT.

The prior fund, Prospect Venture Partners I was a $100 million fund invested in a number of life science companies including Senomyx, Signature Biosciences, and Structural Genomix. [Prospect Venture Partners] was originally founded in 1997 by Barkas and Schnell.

“We are very pleased with the response that we have received from our Limited Partners in this fundraising process. We share the belief that the life sciences industry represents a target-rich investing environment,” said Managing Partner David Schnell, M.D. of Prospect Venture Partners. “The pace of innovation and the breadth of commercial opportunities in biomedicine is unprecedented, and we are very excited about the future.”

Prospect Venture Partners’ Managing Partners serve or have served on the following companies’ Boards of Directors: Advanced Medicine, Connetics Corporation, GelTex Pharmaceuticals, Geron Corporation, Healtheon, Intuitive Surgical, Microcide Pharmaceuticals, Neurocrine Biosciences, Signature Biosciences, Senomyx, Structural Genomix, and Sunesis Pharmaceuticals.

About Prospect Venture Partners

Prospect Venture Partners is a Palo Alto, California-based venture capital firm with $600M of capital under management. The firm is dedicated to investing in biomedical technology and life science companies. Prospect Venture Partners targets biomedical enterprises with outstanding entrepreneurial management teams, proprietary products and innovative technology or services with potential for significant investment returns. The firm’s partners typically take a seat on the board of directors for each of their portfolio companies. Prospect Venture Partners Managing Partners are Alex Barkas, Ph.D. and David Schnell, MD., both formerly of Kleiner Perkins Caufield & Byers, Russell Hirsch, M.D., Ph.D., formerly of the Mayfield Fund and Jim Tananbaum, M.D., formerly of Sierra Ventures.