VENTURE capitalist Lynne Cadenhead and former AorTech director Francis Madden are looking to raise up to GBP 25m for Scotland’s first investment fund aimed at young biomedical companies.
The Caledonia Life Sciences fund last week received backing from Scottish Enterprise’s GBP 20m co-investment scheme.
Its directors include Keith Winton, chief executive of Edinburgh University’s technology fund, and Cadenhead, the former Scottish director of venture capital fund Far Blue. Her role is likely to include selecting investment prospects. Its chief executive is London-based biotechnology expert, Valerie Jolliffe.
Madden, the fund’s chairman, said: “We have put in place all the building blocks to create a dedicated life sciences fund in Scotland. There is a definite funding gap for companies looking for GBP 200,000 and up.”
Madden served as a non-executive director at AorTech, the heart valve developer, for seven years. He is a director of Innov8tive Detection & Monitoring, a Dundee dental technology firm.
The minimum value of the fund has been set at GBP 10m, but the target is GBP 25m. “That would really enable us to do something useful,” Madden said.
Its founders have approached a number of institutional investors in the UK and the US, but have not yet had any firm commitments.
Madden said: “All the venture capital firms are having to follow their existing investments and are unable to fund new companies. That provides a marvellous opportunity for a new fund with none of the baggage of having support deals already done.”
Backing biotech businesses until they float on the stock market can be an expensive and time consuming process. Caledonia intends to get involved at an earlier stage, for example back small firms that licence out their technology to big pharmaceutical groups.
Caledonia is the latest investor to sign up to SE’s co- investment scheme, which matches private sector investment in young companies. Pentech, the software arm of Penta Capital, the Glasgow VC house, also joined up last week.
Gerard Kelly, SE’s head of investment, said: “Progress has been really good so far. Our partners say that if they had more money, they could do more deals.”
Further backing for young biotech firms could come from Seven Hills Venture Partners, a new Edinburgh investment firm. Seven Hills is also negotiating for part of the GBP 7.5m which has yet to be allocated from the co-investment fund.
Noble Group, the Edinburgh finance house, is helping Seven Hills negotiate private sector backing which it hopes to have tied up by September.
Seven Hills is headed by Alan Muir, who previously ran the Dundee company incubator. He managed the centre when it was home to Cyclacel, one of the country’s top biotechnology hopes. Its other directors include Brad Hoy, Cyclacel’s former chief financial officer and a former senior director of Geron BioMed, the Roslin genetics company. He recently left Geron to head Xcellsyz, an obesity drug developer based in Newcastle-upon-Tyne.
Muir said: “Our investors will be probably institutional with a few high net worth individuals.”
Scottish Enterprise’s remaining co-investment fund cash is likely to be parcelled out by autumn. The agency hopes to add a further GBP 25.5m from the European Regional Development Fund later this year.
European cash should allow SE to bring in new partners and ensure that the scheme can keep going until 2008. By that time, it should have started generating returns.
The first co-investment scheme partners were the Archangel and Braveheart business angel groups. They were followed by Hamilton Portfolio, run by the Direct Holidays founder John Boyle; MMI, the biomedical investment group; and Simpson Research, which is owned by the technology guru David Simpson.
The co-investment scheme has invested in four companies so far including Arrayjet, a Dalkeith start-up that uses ink-jet printer technology to analyse genetic material.
On average SE has provided 40 per cent of the funding for the four deals. In theory, it can match the funding put up by any one investor with a limit of GBP 500,000 per investee company.
The scheme was first announced 18 months ago. According to SE, it took a long time to get off the ground because of the large number of investment firms which were interested in taking part.
