BioWorld International Correspondent

MUNICH, Germany - Austrian venture capital firm Gamma Capital Partners (GCP) reached its goal of €10 million for the first closing of a new technology fund, gamma II Beteiligungs-AG, on the way to an announced goal for the fund of €25 million.

The Vienna-based firm anticipates raising the full amount by the end of 2003. GCP already manages approximately €30 million in technology-oriented venture funds.

The fund will be invested across the full spectrum of growth-oriented companies in high technology. In addition to biotechnology investments, the company is pursuing opportunities in information technology, communications, new materials and electronic engineering. Some of the capital also will be used to finance companies in the portfolio of iLab 24, a former technology incubator that GCP acquired in 2002.

The fund's relatively small size compared with many biotechnology deals does not deter the company. "We are positioned to be an Austrian hub for international syndicates," Burkhard Feurstein, managing partner at GCP, told BioWorld International. "We have to have a small footprint in a deal - usually €1 million in a first round - but this figure allows us an optimal leverage position.

"First, this lets us reel in Austrian government aid for start-up firms," Feurstein added. "Second, partners like to have someone on the ground, and that is part of the unique sales proposition that we bring to a syndicate. We see this as sweat equity. Of the three key elements - technology, people and markets - we definitely put people first."

While many biotechnology deals are in the range of €50 million to €100 million, Feurstein sees "a lot of very interesting business opportunities in companies with less ambitious business models."

"If valuations reflect these opportunities, you can earn a reasonable amount of money on a risk-adjusted basis," he said. "This is analogous to the semiconductor business, where there are a lot of good investments that are not the size of Intel or AMD."

Market conditions in GCP's home country are far from favorable. According to the Viennese newspaper Die Presse, this is the first venture fund raised in Austria since 2001. Austria was rated as having the worst tax and legal environment for private equity among the 15 members of the European Union in a study published at the end of March 2003 by the European Venture Capital Association.

Oliver Grabherr, managing partner at GCP, relishes the contrarian position. "In addition to attractive valuations," he said, "competition has virtually withered away.

"We get proposals from as far away as Hamburg and Switzerland and appear to be one of the very few active tech investors in German-speaking Europe considering attractive smaller opportunities," Grabherr added. Feurstein estimated that one-fourth to one-third of the company's investments would be made outside Austria.

Feurstein noted an additional advantage of the difficult market: "The quality of business plans we see today is definitely better than 12 to 18 months ago."

Downside risk is in part covered by the Austrian state. Through the Austrian Wirtschaftsservice, 50 percent of the funds invested are backed by public guarantees. This deposit insurance will apply both to the current closing and any funds raised before the second closing at the end of 2003.

Investors in the fund include Investkredit Bank AG, of Vienna; Raiffeisen Landesbank Upper Austria, of Linz; the insurer Merkur Versicherung AG, of Graz; and the insurer Vorarlberger Landes-Versicherung VaG, of Bregent.

GCP said it will invest between €500,000 and €2 million per firm in minority stakes, depending on the final size of the fund. Company managers anticipate being fully invested by 2006 and expect to make the first profits from the fund two to three years later.