Staff Writer

With an eye on early stage companies, venture capital firm Versant Ventures closed its third fund, totaling $400 million.

Add that to its $250 million Versant Venture Capital I and $400 million Versant Venture Capital II, the firm now manages more than $1 billion in capital aimed at health care companies, including biotech, medical device, pharmaceutical, health care services and health care IT.

"We tend to really focus on early stage initiatives," said Kevin Wasserstein, who was named managing director of Versant Venture Capital III. For Versant, "early stage" investing ranges from seed rounds to Series A and Series B financings. The companies' life stages are anywhere from early conception to preclinical or clinical development with a drug or device prototype, he added.

"And, occasionally, with the more exceptional companies, we might invest in the later-stage" round, Wasserstein said.

When deciding which companies to invest in, Versant looks for a demonstrated entrepreneurial track record and "passion with a great idea," he said. Versant also is on the lookout for technologies that fall in one of two categories.

"We have what we call the Brave New World' category," Wasserstein told BioWorld Today. "These are companies that are really changing the nature of health care by bringing ideas or concepts or solutions that are very different."

An example is Second Sight Medical Products, of Sylmar, Calif., which is developing an approach to retinal stimulation using a prosthetic retinal implant with digital image processing and neurostimulation to treat patients suffering from blindness due to retinitis pigmentosa or age-related macular degeneration.

The second category, which Wasserstein described as the "better-faster-cheaper" group, are companies that are finding different and more effective approaches, or new formulations of existing therapies to treat unmet medical needs. An example there is Hayward, Calif.-based Metabolex Inc., which is developing drugs to treat diabetes by relying on genomics and biology to address underlying causes of the disease.

"We're really looking for visionary types of companies," Wasserstein said, "with opportunities that promise significant and dramatic improvement."

Versant estimates a five-to-seven year time frame before exit. The company's first fund is just entering its sixth year and "we're already seeing some liquidity," Wasserstein said.

"We look to see a significant multiple on our investment," he added. Since Versant primarily seeks early stage companies that offer products targeted toward $500 million to $1 billion markets, "that usually translates into multiples of 10x or better."

Exiting can depend on several factors, the market included.

"We focus on trying to build compelling solutions, to make sure our companies have capital for the long haul to make it on their own," he said. "So if and when and where those exits occur is really a function of a lot of other things."

To date, Versant has invested in more than 65 companies. From an investment perspective, the health care and life sciences sector is a "very robust environment," Wasserstein said. "There are a lot of capital resources available to entrepreneurs.

"And from a health care standpoint, there are still large unmet medical needs," he added. "There are probably 900 diseases out there, and the vast majority has no cure, since most of the technology is palliative only. So there is a demand here, and with the aging baby boomers, there is a tremendous opportunity to address significant clinical needs for patients."