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| Above:
Managing Directors and Founders of RiverVest Venture Partners
- Andrew B. Craig III, Thomas C. Melzer, Mark J. Mendel, Ph.D
and Jay W. Schmelter |
It Takes Money
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Private
equity firms boost companies’ futures.
By Kevin Kipp
Talk is cheap, and it’s worth millions. Venture capital and private
equity firm principals rely on it to find the companies that need
their cash to expand.
Steve Broun, senior vice president at Capital For Business, says,
“While every company needs a banker, not everyone needs venture
capital. We rely on our referral network—other venture capitalists,
attorneys, accountants, investment bankers and bankers...even non-Commerce
bankers to drive our deal flow.”
Capital For Business, Broun says, is the “venture capital arm of
Commerce Bancshares.”
Thomas Melzer, managing director and one of four co-founders at
RiverVest Venture Partners, adds research institutions to the list
of valuable sources of field intelligence. “We should know most
of what’s going on by staying in touch with universities and centers
of excellence, like the Nidus Center and the Center for Emerging
Technologies,” he says.
Venture capitalists can also find leads and information at industry-sponsored
events. Broun is president of the Missouri Venture Forum. “Our monthly
breakfast meetings are focused on networking, linking entrepreneurs,
service providers and investors—these might be angel investors or
venture capital firms,” he says.
Another source of deal flow are the venture capital conferences
such as InvestMidwest Venture Capital Forum, scheduled for May at
the Ritz-Carlton in Clayton. You can read more about InvestMidwest
in the nearby sidebar. “InvestMidwest is a great vehicle to showcase
some of the growing regional businesses,” Broun says.
“Successful economic development now includes not only recruiting
companies and jobs, but also recruiting capital and talent,” says
John Bachmann, chairman of the RCGA and managing partner Edward
Jones. “To that end, the RCGA is taking a proactive approach to
working with the region’s existing venture capital community as
well as enlisting and recruiting additional venture capital interest
to the area. In fact, the RCGA has recently convened an informal
round table of the area’s venture capital community to provide a
high level network for sharing of trends and deals emerging in this
market,” he says.
Broun explains that Capital For Business invests in later stage
expansions and buyouts throughout the Midwest, typically companies
of $10-to-$100 million in revenue.
“While presenters at InvestMidwest typically represent earlier stage
opportunities than we usually pursue, we have found several attractive
companies to invest in,” he says.
“The common perception is that venture capital is only for funding
start-up companies and emerging technologies from universities,”
Broun says. “The truth of the matter is that private equity spans
all stages, from seed investments to later stage companies, not
only in technology but a broad range of industries including manufacturing,
retail and distribution.”
Broun says his firm looks for companies with a “good, solid management
team with experience in their industry. The team needs to be complete,
including sales, marketing, operations and finance.”
Through various funds, his firm manages $110 million. The investment
pool came “primarily from Commerce. Other firms raise private capital
from insurance companies and pension funds, that look at venture
capital as another asset class, similar to stocks, bonds or real
estate,” he says.
Investment firms’ investments, unlike politics, are not all local.
RiverVest had four investments as of December, Melzer says, worth
roughly $6.5 million “with term sheets out that I expect to yield
some additional investment by the time you publish in February.”
One company is from St. Louis, one is from Kansas City, and one
is from each coast. RiverVest put $1.5-to-$2.5 million in each out-of-town
company.
St. Louis-based Kereos Inc., a biotech company whose co-founders
are BJC docs, represents an investment of about a half-million,
Melzer says.
“Kereos presented at InvestMidwest,” he says, “but we were aware
of them before then. Our visibility helps many opportunities to
find us.”
If you haven’t heard of Melzer’s partners Jay Schmelter or Mark
Mendel, perhaps the remaining name rings a visi-bell: Andrew Craig,
former chair of Boatmen’s, then Nations Banks. Presumably, Melzer’s
position as president of the St. Louis Federal Reserve Bank from
1985 to 1998 also garners notice.
“We see a significant deal-flow nationally,” he says, pointing out
that RiverVest heard about its coastal investments from other investment
firms. “It’s very common and very good for portfolio companies to
have a diversity of investors.”
Venture capital firms, though aggressively competitive, are also
willing to share attractive investment opportunities with one another
because some opportunities fall outside a firm’s expertise or focus.
And sometimes a favor is returned; and paybacks are rich.
Melzer explains that additional investors help the portfolio company.
“It provides them with more sources of capital for later stages
of their growth, and with more sources of expertise to achieve that
growth.”
More investors in a syndicate reduces each member’s risk in one
particular company, as well.
Like most firms, RiverVest has a focus: “Ours is life sciences,
particularly medical technology. That encompasses devices, biotechnology,
specialty pharmaceuticals and tools for drug development. We’re
also paying attention to the developing plant sciences.”
More Melzer: “Part of our strategy is to invest nationally, but
pay particular attention to Missouri and the rest of this region.”
RiverVest’s initial closing was Sept. 15, 2000, at which time they
had assembled $28.5 million for RiverVest Venture Fund I LP. The
fund eventually “closed out with $89 million under management.”
Melzer jokes that it might be a good idea to get Fund I invested
before raising additional funds.
Appropriate to St. Louis’s crucial role in past and likely development
in plant and life sciences, RiverVest is just one of the players
in that “space.”
Prolog Ventures LLC, according to managing director Ilya Nykin,
“emphasizes life & plant sciences, healthcare and related information
technologies.
Nykin, with fellow directors Greg Johnson and Brian Clevinger raised
nearly $34 million as of their final closing in November 2001, from
“several key institutional investors.”
He named a raft of recognizable locals, among them Washington University,
Saint Louis University, the University of Missouri system, the Carpenter’s
Pension Trust Fund, Monsanto, Stifel Financial, and the Danforth
Foundation. Oh, and some individuals.
They have invested “close to $2 million in two investments—one in
medical devices, the other is a pharmaceutical play—and/with two
term sheets out.”
The firm will focus on Missouri, and consider investments in neighboring
states. “St. Louis and Missouri are first-tier markets for our emphasis,
with a tremendous concentration of intellectual assets. Kansas City
has assets, too, like the Stowers Institute.”
At Auxyn Biosciences, they’re still staffing up, but according to
principal Arnold Donald (also chairman of Merisant, the company
that bought Equal from Monsanto) the cause for optimism is palpable.
“We have not aggressively raised funds, but the preliminary response
is VERY encouraging,” Donald says. “If we pull it off we should
have $200 million-plus and 15 to 20 investments. We’re optimistic,
in part because our principals include Andy Bursky, also a principal
in Pegasus, a private equity firm with $900 million under management.
And we have Ganesh Kishore, a world-renown scientist and nutrition
expert from Monsanto. He is looked upon as a father of plant genomics.”
Donald says Auxyn will have a broad scope, “encompassing all life
sciences...bio-informatics, plant biotech, nutrition and human health
areas that people in this space conventionally invest in.”
Donald and his colleagues will look for investments “later than
the seed or pre-seed capital stage.”
He estimates that two-thirds to three-quarters of the funding will
come from outside St. Louis. “But we needed a commitment here,”
he explains, “because our purpose is to accelerate the Biobelt in
St. Louis...and generate a handsome return for our investors, of
course.”
Pending the outcome of a merger that’s under discussion, Auxyn could
have its first closing in three months. “Or it could be a year,”
he says.
At Oakwood Medical Investors Raul Perez, MD, traded his practice
of 20 years to head up a firm with Jay Nouss of Bryan Cave, and
Dan Burkhardt, a partner at Edward Jones. They launched Oakwood
I in 1997, and Oakwood II in 1999. They invested $10 million.
Of the $24 million raised for Oakwood III, $5.9 million has been
placed, including 1.8 million in Merix Biosciences, in Durham, N.C..
This outfit is working with cancer vaccines.
“As we get up into II and III,” Perez says, “we started to do more
therapeutics and less devices, and we’ve started investing in a
little later-stage companies than the earlier Oakwood.”
Perez says the firm is willing to stray a little. “We’re ‘opportunistic.’
If there’s an opportunity to make money for our investors, that’s
our goal.”
Among his investors are A.G. Edwards, Edward Jones, and Commerce
Bank. As for leads on investments, he says, “Networking is everything
here.”
The St. Louis area has also attracted out-of-state venture investment
firms. St. Louis native Jeff Gentsch is one of five partners in
Key Principal Partners, a private equity fund backed primarily through
KeyCorp out of Cleveland. With offices here, there, in Greenwich,
Conn., and in San Francisco, KPP has just under $1 billion in capital,
Gentsch says.
His firm’s venture capital investments are aimed at “two broadly
defined areas: late stage ventures, with $5 million in revenue and
up, in business—to business-enterprise software. We also look at
early- and late-stage companies in communications businesses. The
two areas are separate but related.”
On the private equity side of KPP’s work, Gentsch looks to purchase
or invest in companies with sales of $25 to $300 million “that need
capital to grow, shareholder liquidity or for wealth transfer.”
Gentsch says KPP has $300 million in capital invested in 35 mostly
privately held companies engaged in manufacturing, distribution
and service.
Of KPP’s remaining $700 million, Gentsch says he is “confident some
will almost certainly find a home in Missouri.”
Dealmaker
May
20, 21
Third
Annual InvestMidwest
Venture Capital Forum
The Ritz Carlton-St. Louis
Call 314/444-1151 |
Even marriages made in Heaven can use a little help, and Chris
Walsh, executive director at InvestMidwest Venture Capital
Forum, is working to make the event the venue for investors
to meet the best investment opportunities in the region.
Here’s what the www.investmidwestforum.com website says about
the conference:
You’re invited to attend the Third Annual InvestMidwest
Venture Capital Forum presented by the RCGA, Missouri Venture
Forum, Technology Gateway Alliance, Greater Kansas City Chamber
of Commerce, KCCatalyst and Kansas Technology Enterprise Corporation.
It is the Midwest’s premier event fueling entrepreneurship
and technology growth in the Midwest.
Driven by mid-America business values, solid fundamentals,
and a more reasoned, intelligent approach to investing, the
Missouri and Midwest tech sectors are thriving. Here, our
fastest-growing firms are real businesses with real products.
Join the region’s most dynamic entrepreneurs on May 20-21
as they present innovative business plans to an audience of
several hundred top venture capitalists, investment bankers,
corporate and private investors from the State of Missouri—and
from across the U.S. Building on two successful years, the
InvestMidwest Forum is again attracting high-quality, up-and-coming
firms capable of producing high rates of return for investors.
Our positive business dynamics are founded on a robust entrepreneurial
economy—realistic valuations—better access to deals—and Midwest
integrity and business ethics every step of the way. We hope
you’ll be part of the opportunity!
InvestMidwest alternates between St. Louis and Kansas City,
Walsh says. It attracted 370 participants when it was here
in 2000, and 280 last year in Kansas City. “InvestMidwest
has been successful in both communities and has truly become
a regional event.”
“We try to have a diverse group of entrepreneurs,” she says,
“not just from one area. Presenters will represent manufacturing,
retail, life science and biotech as well as conventional technology
sectors...more than telecom and software. The goal is to find
capital for those regional companies that have potential.”
Steve Broun, senior vice president at Capital For Business,
says, “InvestMidwest is a great vehicle to showcase some of
the area’s outstanding high growth businesses, providing companies
exposure to a variety of local, regional and national capital
sources.”
Jeff Gentsch, partner at Key Principal Partners, says, “This
whole business is about networking. We regularly attend a
variety of networking events. InvestMidwest is worthwhile
for us even though we’re looking at people we might want to
talk to a year or two from now.
And Thomas Melzer, managing director at RiverVest Venture
Partners, says “InvestMidwest is particularly useful in creating
visibility with a broader audience.”
“The InvestMidwest Forum gives entrepreneurs an opportunity
to present their businesses to a roomful of potential investors
instead of one at a time,” Walsh says.
“Our goal is to help entrepreneurs solidify their business
concepts, crystallize their business plans and create a presentation
that effectively communicates their plans to investors,” she
says. “The conference provides these businesses with great
exposure and an unparalleled networking forum with a captive
audience of funding sources and service providers.” |
Kevin Kipp runs Bubble Communications, a creative services and
community relations firm in St. Charles. |
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