HealthCare Capital Partners

State’s Seed Capital Fund Finally In Play for Biosciences Companies

by Charles Craig

When getting down to details, some folks find the experience enlightening while others consider it downright scary. Either “God is in the details” as 19^th century novelist Gustave Flaubert suggested, or the devil is, according to a popular variation.

Good or bad, however, details often get overlooked, especially in the myriad pages of bills written by the General Assembly each year. So for those who missed it, the state revised its seed capital funding guidelines, making it easier for life sciences companies to get the money.

The changes let the state invest directly in companies, rather than first setting up a limited liability corporation (LLC). They also cap the maximum company investment at $1 million, up from $500,000.

Lee Herron, the Georgia Biomedical Partnership’s legislative committee chairman, called the adjustments subtle, but significant. The LLC requirement proved a barrier in putting to work $3 million allocated two years ago. Herron is general manager of biosciences for the Advanced Technology Development Center (ATDC), a Georgia Tech incubator that nurtures new companies.

His tenants and those in other life sciences incubators around the state are primary targets for the seed capital. Tweaking the details should prove divine for them, and the impact was almost immediate. The fund’s first investment is expected to close before summer’s end.

The legislation still requires each $1 from the state to be matched by at least $3 from the private sector. Contrary to popular perception, the private sector match should be no problem, said Thomas Brooks, founding partner of the Atlanta venture capital (VC) firm, HealthCare Capital Partners. Brooks’ fund, established in 2003, makes seed and early stage investments. He estimates the state’s $3 million could leverage between $30 million and $50 million in private sector investments.

Many Georgia life sciences supporters bemoan a lack of seed capital, but Brooks says money is plentiful. Companies are looking in all the wrong places. “The entrepreneurs are not taking the time to research the VC market to identify their best targets,” he said. “And there are not a lot of people helping them. If they have drug companies, they should be looking for funds that do drug development deals.”

Sounds like common sense. But Brooks finds most entrepreneurs so focused on R & D, they neglect doing even minimal homework before mailing business plans, such as checking Web sites for the kinds of companies in VC portfolios.

In his first year, Brooks received 175 business plans from Southeast companies. He invested in three and is looking at three others. Considering half the pitches were misdirected, the six companies he likes represent about 10% of the plans, which is about average for most VC firms. HealthCare Capital invests between $100,000 and $1.5 million per company.

Brooks rattled off a string of VC firms with money for Southeast companies burning a hole in their pockets: Croft & Bender, Atlanta; Tullis-Dickerson and Harbert Management Corp, Alabama; Clayton Associates, MB Venture Partners and SSM Ventures, all in Tennessee; A.M. Pappas and Associates and Aurora Funds, North Carolina; Gordon River Capital and Crossbow Ventures, Florida; Emerging Technology Partners, Maryland; MDS Capital, Massachusetts; and Radius Ventures, New York.

The Southeast, Brooks observes, is blossoming with start-up life sciences companies. He ranks North Carolina and Florida as the most fertile hunting grounds, followed by Georgia, Alabama, South Carolina and Tennessee.

For example, San Diego-based Scripps Research Institute’s expansion to Florida has VCs rushing to the Sunshine State for technology breakthroughs from the world-renowned laboratories.

Georgia’s life sciences industry is also growing, and the state is elevating its economic development efforts. Gov. Sonny Perdue’s Commission for a New Georgia is identifying strategic industries for priority status in allocation of resources. Candidates were nominated in July.

Annie Hunt Burriss, the commission’s executive director, says the strategic industries task force- chaired by Dave Garrett, of Scottdale-based Mallory and Evan Development-recommended biosciences among the top half-dozen.

To paraphrase Flaubert, the beauty of the commission’s work will be in the details, which will not be released until later this year. Brooks, for one, has not heard about the commission’s work. He hopes Perdue’s partisans cast a wider net for input- sound advice for keeping the devil out of the details.