LONDON _ After more than a decade of investing in biotechnologyand other life science companies through general venture capital funds,Schroder Ventures has set up an International Life Science Fund,aimed solely at this sector. The U.K.-based venture capital groupannounced on Tuesday that it has raised $100 million.As well as being Schroder's first industry-specific investment fund, itrepresents another first for Schroder in being the company's firstmultinational fund.U.K. financial institutions contributed 27 percent of the total capital tothe new fund. The balance came from the U.S., continental Europe, theMiddle East and Southeast Asia. Some 43 percent of the capital camefrom institutional investors who had not already invested with SchroderVentures.A company spokesman said the managers of the new fund expect toput money in 25 to 35 life science companies in the U.S. and Europe.Not all of the money will go to biotech companies. The fund intends tocreate a balanced portfolio of investments across several sectors. Thefund's definition of life sciences also covers pharmaceuticals, clinicaldiagnostics, medical devices and instruments, health care services,agricultural biotechnology and environmental applications. Most of thenew investments will probably be in U.S. companies at the start-upstage. The rest will go into management buy-outs.Schroder expects the fund to invest between $1 and $5 million percompany, with an average investment of $3 million per company, thespokesman said. For its investment, the fund expects to acquire at leasta 10 percent share of a company. The fund will also be activelyinvolved in the management of the companies it supports.This involvement will include finding senior management for somecompanies. Kate Bingham, a biochemist and life sciences expert on theSchroder team since 1991, points out that management is a key issuefor some British start-ups. With little tradition of job mobility amongsenior executives, it is sometimes difficult to find people with theexpertise needed to take new companies through their formative years.Bingham sees this issue as one of the brakes on the biotech business inthe U.K. and the rest of Europe. At the moment, there is no shortage ofpromising investment opportunities. "I have never known it to be sostrong," she says. But some deals hang on finding the rightmanagement, which is proving difficult in the U.K.As well as participating in the management of companies, Schroder isalso actively seeking out technologies in which it can invest. Forexample, Bingham said that she spends a lot of time talking toresearchers in the Medical Research Council, which supports most ofBritain's government funded medical research.Schroder claims to have been one of the first investors inbiotechnology in the U.K. It has already built up a portfolio ofinvestments in 41 companies. The total investment, from six differentgeneral venture capital funds, three in the U.S. and three in the U.K.,amounted to $77 million. Schroder has already realized $45 million forits investors.The company estimates that its current portfolio with 30 companies inthe U.S., 10 in the U.K. and one in France is worth about $115 million,and has yet to experience a failure. All of the companies it has backedare still trading, although it has written down to zero the value of twocompanies. Healthier companies in the portfolio include ChiroscienceGroup, recently floated on the London Stock Exchange, ShireHoldings, Therexsys, Xenova and Animal Biotechnology Cambridge.Schroder started marketing the new fund at the beginning of 1993.While the company raised the $100 million target it had set for itself,Peter McPartland, a member of the U.K. venture group, admits thatthey had some trouble selling the idea of an international fund toinvestors in the U.S. "It has taken us longer than we thought," saidMcPartland.American investors did not like the idea of an international fund. Thesales drive also had to contend with the general problems of the biotechand health care sector. The threat of health care reform in the U.S. didnot help, McPartland said.In the U.K. the fund had to deal with other preconceptions. Inparticular, said McPartland, U.K. investors do not like start-ups. Theydo not believe that it is possible to get a good return from this sector.McPartland said that Schroder's record shows that it can meet theaspirations of investors. He expects the current closed fund to haveinvested its $100 million in six years or so. When the fund hascommitted around two-thirds of the investment, the time will be rightto start another fund.
-- Michael Kenward Special to BioWorld
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