“The math with the FDA just doesn’t work anymore for us in terms of venture fund life cycle.”
Scale Venture Partners has decided to nix its life sciences investment practice and shift its full focus to investing only in technology companies. In a posting on its website published November 7, the firm cited regulatory unpredictability and corresponding growing costs as the major reasons for the restructuring of its investment strategies.
Scale is an expansion-stage investor that sprung to life 16 years ago and helps companies scale up until they are ready for an initial public offering or acquisition. It has been a major player in the life sciences sector, investing in more than 30 healthcare companies in that time. While companies Scale invested in can boast five regulatory approvals in the past four years, the firm doesn’t believe placing future bets in the industry is in its or its limited partners’ best interest.
In an interview with Forbes, Managing Director Kate Mitchell said that “our portfolio has had seven New Drug Applications since 2008, with five approved and two still pending. That should be a success, except that it has taken twice as long to get there as it used to five or six years ago. The math with the FDA just doesn’t work anymore for us in terms of venture fund life cycle.”
Despite the move, Managing Directors Lou Brock and Mark Brooks, who spearheaded the firm’s healthcare investing since 2000, are expected to remain on-board to support Scale’s existing portfolio companies.
The decision by Scale seems to play into a shift within the venture capital industry from general funds to specialty funds. Just last week, Morgenthaler Ventures and Advanced Technology Ventures decided to break away from their IT counterparts and unite under one healthcare-focused VC firm while Third Rock Ventures sprung to life in late 2007 with the sole purpose of investing in life-science companies.
Scale’s decision, however, is believed to mark the first time a VC firm has explicitly ceased its healthcare practice without some version of a spin-out to re-focus its investment strategies.
November 11, 2011
http://www.burrillreport.com/article-the_ultimate_exit_strategy.html