reprint
back

Radius Caps Second Life Sciences Fund with $73.5M
By Yuliya Chernova
2/18/2003
NEW YORK -- Radius Ventures, a health and life sciences venture capital firm, has closed its second fund, Radius Venture Partners II, at $73.5 million, about three times the size of Radius's first fund. The fund will focus on low valuation firms across sectors including drug developers in early stages of their lifecycles as well as established healthcare IT firms with positive cash flow.

Daniel Lubin, co-founder and managing partner of Radius Ventures, said the firm raised a larger fund in order to take advantage of the low valuations available in the current market for strong companies. "Leading up to the tech bubble health and life sciences did not have the drawing power of high tech and the Internet. The sector was under invested," he said. "We are in the catch-up phase now," he added referring to the major healthcare funds closed recently, including Healthcare Ventures III at $350 million and MPM Capital's $900 million BioVentures III.

With the new fund Radius raised money from classic institutional investors for the first time. Radius I primarily raised money from high net worth individual investors who had less staying power over multiple funds, said Mr. Lubin. Radius II limited partners include CRA Funding and Bain Capital. "We show Bain deals and they show us deals, and we do look to coinvest," said Mr. Lubin.

This was also the first time that Radius secured commitments from global investors in Europe, Latin America, and Canada in addition to the U.S. "This makes an excellent platform for our organization as we think of Radius III and IV," Mr. Lubin said.

Radius II will still invest in the U.S. only, concentrating on the New England region close to its New York office. "We do invest all over but as we get farther away we make sure there is a strong local investor in the syndicate coinvesting with us," said Mr. Lubin.

Radius II will take three to four years to establish its full portfolio, at the rate of five to six deals per year, according to Mr. Lubin. Radius I closed in 1997 and stopped adding new companies to its portfolio of 17 companies in the last quarter of 2001. Radius I still holds some funds in reserve for follow-on financings.

Radius I did not start actively investing until 1999-2000, Mr. Lubin said, so the pace for Radius II will be similar with 15 to 20 planned for its portfolio. In the earlier fund, the firm limited its total commitment to each company to $1million to $2 million. With Radius II, the firm will invest up to $5 million over the life of a company. "We could have put more money to work if we had had it," said Mr. Lubin, "but it was our first fund and we decided to keep it small and demonstrate ability to build a successful fund."

Two companies in Radius I portfolio were sold. In 2001, Radius made a PIPE investment in BEI Medical Systems, which manufactured invasive endometrial ablation systems and was later acquired by Boston Scientific in June 2002. Clinical Micro Sensors, which developed DNA biochips for delivery of genetic information, was acquired by Motorola in June 2001.

Medical device and drug discovery sectors will receive 60% to 70% of the second fund's money, while the rest will go to health services.

The "early-stage" designation for the fund means an early-stage valuation of $5 million to $15 million, not necessarily early in the company's lifecycle, said Mr. Lubin. "In the current market there are companies with $40 million to $50 million revenues being valued at half their revenues," he said. Service-oriented companies are generally valued low even when they are well established, he said, while "exciting intellectual property ends up getting attractive valuations even if the companies are early in their cycles."

Mr. Lubin plans to balance the Radius II portfolio with investments across stages. He said he plans to commit approximately 30% of its total per company investment in the first round for drug development companies and a significantly larger portion of total investment in the first round of service firms. Radius II will also consider later-stage deals on selective basis.

Radius started raising its second fund in June 2001 aiming for $100 million, said Mr. Lubin. The firm held the first close of Radius II in the fourth quarter of 2001 with $33 million, but decided to lower its target to $75 million due to market conditions.

Radius II already has three companies in its portfolio. It invested $1 million, half from Radius I and half from Radius II, in the seed round of Zettacore, a developer of molecular structure technology for use in electronic storage devices based in Denver. Zettacore, the first Radius II investment in 4Q01, was followed by a Series B investment in San Carlos, CA-based Nugen, a provider of genetic analysis technology. Nugen also received $1 million split between Radius I and II. Radius II made its most recent commitment in June 2002 of just under $1 million in the Series B of Aurora, Colo.-based Health Language, which supplies medical vocabulary and concept-based software server technology.

Mr. Lubin founded the firm with Jordan Davis, who also serves as managing partner. The two cofounded Cambridge Heart, a cardiology device company that went public in 1996, and have been investing together for more than a decade. The firm also includes venture partner Peter Origenes and principal Ellie Tan.

Radius, which limits its partners to five board seats, is actively seeking to add at least two staff members at the associate or partner level.


http://www.radiusventures.com