Jul. 4–International financier Peter Brooke, known for his eye for opportunity, is turning his gaze — and that of other investors — on St. Louis’ life-science industry.

He is endorsing local efforts to create a $100 million “fund of funds” — a pool of venture capital. He said there are enough exciting opportunities here to make it worthwhile.

“A lot of hard work has been done by people in St. Louis” to build the industry, said Brooke, chairman and founder of Advent International, a Boston-based venture-capital fund that has raised $6 billion since 1984.

“It would be a shame if (investors) didn’t respond,” he said, “because there’s so much to be gained.”

Brooke was hired to do a feasibility study by the Coalition for Plant and Life Sciences, a group formed by Civic Progress and the St. Louis Regional Chamber & Growth Association, with funding from the Danforth Foundation and McDonnell family.

Organizers say the fund of funds would be invested in life-sciences companies at various stages of development, here and nationwide. Some would be safe bets, others young and risky.

The goal is to provide an investment vehicle stable enough to attract state pension funds, university endowments and other institutional investors that otherwise would not be able to fund St. Louis’ volatile, fledgling companies.

It also would allow the local industry to tap into a new pool of money.

“We are intrigued by the possibility,” said Steve Yoakum, executive director of the state’s largest pension fund, the Public School Retirement System of Missouri. It has $20 billion to invest, about 3 percent of which is earmarked for private equity.

The system’s board likes the fund-of-funds concept, Yoakum said. It already has invested $200 million in one run by Pathway Capital Management of Irvine, Calif., in part because no similar local fund exists.

“We’re hoping the (St. Louis) proponents can put together something that’s of an investment grade for institutional investors like us. I think it’ll be good for the region and good for the state,” Yoakum said, noting that the retirement system’s board would have to approve any investment. “But we always look at home, when we can. . . . If we can find a similar deal here to what we can find somewhere else, we would prefer to invest here at home.”

Organizers have come up with a tentative formula for the fund of funds, which they are taking to potential investors. Brooke, who is helping with the effort, explained how it could work.

The $100 million would be allocated to five existing venture-capital firms — two in St. Louis (most likely Prolog Ventures and RiverVest Venture Partners), and three on the coasts (possibly including Brooke’s Advent International).

A portion of the fund, possibly 30 percent to 40 percent, would be earmarked for the local firms, though the ultimate mix would be determined by market conditions.

Fund managers would exchange expertise and help one another find additional investors for promising deals. The overall risk to any one investor would be mitigated by the number of deals, wide pool of money and high level of professional guidance.

“We hope to create this collaborative arrangement among all of the managers,” Brooke said. “And, more importantly, those outside the region will lend their capital and support to what’s happening in St. Louis . . . (where) there is not enough capital to realize the opportunities.”

Donn Rubin, executive director of the Coalition for Plant and Life Sciences, emphasized that it is not a done deal. And the model could still change, to meet local needs or the demands of the market.

The biggest test, he said, will be raising $100 million.

“It’s not a no-brainer, and it’s not a simple task,” Rubin said.

Yet he is confident there are factors working in the fund’s favor.

St. Louis is still a “best-kept secret” in the investment world — so those who jump in first will have their pick of good opportunities, he said. And, with little competition from other venture capitalists, they would be operating from a strong position when negotiating terms with the startups.

“There are a lot of good ideas without a lot of people chasing them,” Rubin said. “But if you wait for years, then everybody’s going to know about them.”

This is also a good time to be raising a new fund of funds, despite the languishing economy, say venture-capital experts. Institutional investors have money to spend and, with historically low interest rates, they are looking for ways to earn a high return.

“We’re hearing, across the board, a commitment from pension funds to remain active in this asset class,” said John Taylor, vice president of research for the National Venture Capital Association, based in Arlington, Va.

Yet there are not a lot of venture capital opportunities, he said. Existing funds are sitting on an estimated $85 billion that they have yet to invest — so most are not raising more money. Many funds also are encumbered with companies that they have already invested in, which they must continue to support until public stock offerings become more attractive again. They are not able to seize new opportunities.

“So, it is a good time for a promising, upstart venture fund to be going out and raising money,” Taylor said.

When it comes to winning over investors, he said, “a lot of it depends on who’s managing the fund, and what their track record is.”

And that’s where Brooke comes in.

He said he is using his contacts and 42 years of experience in venture capital to find top funds from the coasts, which are more experienced than the good, but new, St. Louis ones. He has helped identify six that are interested — including his own fund; three ultimately will be selected.

All are being persuaded by the report on St. Louis’ biotech potential, prepared by Brooke & Co. (Peter Brooke and his son, John) and Economic Innovations International, a Boston-based development strategy consulting firm led by Belden Daniels.

“They weren’t paid to give us good news. We wanted a very sober, honest evaluation from a credible team of experts,” Rubin said. “So we are very pleased with the outcome.”

And, even if the fund of funds fails to materialize, the report is important as a “reality check” on local life-science industry building efforts, he said.

“It’s an outside validation of what we’ve been doing here — (that) we’ve been doing the right thing.”

—–

To see more of the St. Louis Post-Dispatch, or to subscribe to the newspaper, go to http://www.stltoday.com.

(c) 2003, St. Louis Post-Dispatch. Distributed by Knight Ridder/Tribune Business News.