It is always an exciting opportunity to report on new fund closings. In this case you may have already heard of Boston-based SV Life Sciences who recently closed their oversubscribed (yes, oversubscribed its $400M target close by some $100M+) $523M Fund V.

A few years ago I met peHub Editor-at-Large extraordinaire Dan Primack, who went on to take all my money from me at the Venture Capital in the Rockies Conference casino night and poker tournament. Despite my feelings about him on that particular evening I really admire his acumen and skill sets. That said, rather than have me wax on with my speculative drivel about the SV Life Sciences fund closing sit back and enjoy this brief interview Dan had with SVLS Chairman and Managing Partner Jim Garvey.

Many VC firms are having trouble closing on even half of their fund targets, but you were well oversubscribed. Here’s the softball: Why did LPs love you so much?
Garvey: One reason is that we’ve been at this for 15 years and our first three funds have demonstrable track records. And I think when times turned tough and LPs were hit with liquidity crises, many of them used performance as the deciding factor on who they were going to keep following. Our strategy is probably a good fit in difficult times, because it’s very broad across healthcare. We’re investing across two continents, early-stage to late-stage and in biotech, pharma and healthcare IT.

You mentioned the first three funds. Why not fund four?
Well, our average exit takes four to six years, and we didn’t begin investing Fund IV until 2007. The only thing LPs looked at was if what we did in that fund was consistent with our strategy, and it was.

On the IT side of venture capital, there has been lots of talk about building leaner companies with smaller investments. Can that work in healthcare?
I don’t think so. You’ve got to build these companies to an inflection point. So if it’s a later-stage healthcare services company, that’s taking a profitable business and increasing revenue and building it out. That takes time and money to do.
When it comes to pharma or med-tech, you’ve got to remember that healthcare, unlike IT, is a regulated business and 50% of it is government-directed reimbursement. So you’ve got to be able to take the technology to an inflection point. That’s why the risk is a bit lower – maybe one in two instead of two in ten — but also why we need to reserve at least $2 in follow-on for every dollar of investment.

Did you have to sweeten your fund terms at all?
No. We already were probably a bit more user-friendly than some of the other firms out there. Some other firms that got good performance increased their carry to 25% or 30%, but we never crossed that bridge. We also didn’t take returns on a deal-by-deal basis and have to deal with clawbacks and the like. We return capital and fees before we get our stake, and have kept that structure through all of our funds. I think it’s something our LPs appreciate.

A bunch of VC firms are effectively in wind-down mode. Any worry that you won’t have syndicate partners for later-stage deals?
No, partly because of the way we fund our deals. A Series A round today we structure the terms out three years, on average. When you look at these $30 million Series A rounds, they are what the old A, B and C rounds used to be, but now structured with milestones. Also, in each fund we recycle more and more of our entrepreneurs. In the last fund we created more than half of our own deals, and this one could be north of 75% or 80%. We like to co-lead with another firm that has pockets as large and deep as us, even if we’ve created the company. Then we look after three years and if the company hasn’t created value at that point, we consider closing it down. If the company is successful, we don’t usually have troubles with syndicate partners. I also think we’re going to see acquirers come in earlier now.

REMINDER

Many thanks to all of you who have reached out to me here in Boston making my arrival a very warm and fuzzy one. Just a reminder to those of you who missed last Friday’s post OnBioVC, an Indicium Data company, is excited to announce that a satellite office has opened at Harvard Square in Cambridge, MA! If you are in the neighborhood (or anywhere in the greater Boston vicinity) I would love to connect with you! Please contact me via your favorite mode:

Adam Rubenstein
Email: arubenstein@rnaventures.com
Phone: 303.902.4413
Twitter: @arubenstein
Skype: arubenstein
Facebook: facebook.com/adam.rubenstein
My Personal Blog: LifeScienceDealFlow.com