Oh Canada! Versant’s Strategic Shifts Lead to $300M Fund

Xconomy San Francisco — 

Versant Ventures, based in the San Francisco Bay Area but growing in Europe and especially Canada, is a few million dollars away from closing a new US$300 million fund, according to a regulatory filing.

The fund, the fifth for the life science specialists, has been in the works for several years, with more than the typical lag time since the $500 million Versant IV closed in 2008.

It’s a glass three-fifths full or two-fifths empty, depending on your point of view. Thanks in part to new Canadian limited partners, Versant on one hand has survived to invest again, something many of its biotech venture peers have failed to do the past few years. On the other hand, the firm is playing with 40 percent less money this time around. (A lot of people in venture and beyond would actually say a smaller fund is a good thing; when the Kauffman Foundation issued its damning 2012 report about venture returns, it said it would approach VCs with the assumption that “big VC funds fail to deliver big returns.”)

Versant’s lower fund size is indicative of a larger trend in biotech: despite the bounty of returns from the IPO bonanza of the past 18 months, the pension funds and other institutions that bankroll VCs aren’t necessarily plowing a lot of that cash back into venture.

Among biotech investors, Versant, which has invested in drugs, medical devices and diagnostics since 1999, has made some of the most noticeable adjustments to the new reality. The changes fit into three main categories.

First, it has devoted much of its biopharma side of the house to a new business model that flies in the face of traditional biopharma investment. A growing part of its business is what’s known in biotech as “asset-centric”—funding single programs instead of building companies, and lining up potential buyers for them when they launch.

These options-to-acquire have traditionally been seen as a damper on potential home-run returns—if the idea becomes a massive breakthrough, the buyer ends up with quite a bargain—but Versant officials have long insisted they can get healthy returns through what they call the “build to buy” structure. So far Celgene, Roche, Bayer, and Shire have signed up for options on the various programs. We recently wrote in detail about one of them here.

To oversee their build-to-buy portfolio, with a half-dozen programs and counting, Versant has created a group called Inception Sciences, with labs in San Diego, Vancouver, and now Montreal. It also has an incubator in Toronto that will spin out build-to-buy companies with Celgene holding an option to acquire them.

The push into Canada is Versant’s second major pivot. (The partner running Versant’s biopharma strategy, Brad Bolzon, pictured above, is Canadian. He declined to comment about the new fund.) The firm has tapped into a network of former Merck scientists once based in Montreal to complement its new strategy, and for the new fund, it has also tapped into Canadian dollars. Versant V counts at least four new Canadian limited partners: Teralys Capital, Fonds de solidarité FTQ, BDC Venture Capital, and Northleaf Venture Catalyst Fund. Teralys and Northleaf combined to commit $35 million.

The third change at Versant is personnel. It’s been known for some time that four partners would not continue with the new fund. (One of them, Camille Samuels, has resurfaced at Venrock, as we reported here.)

In their place, others are ascendant. Most notably, the biopharma investor Tom Woiwode, who spends most of his time in Versant’s Basel, Switzerland office, is now a managing director. Woiwode recently put together London-based CRISPR Therapeutics, an ambitious attempt to turn a cutting-edge gene-editing technology into a gene therapy platform that will compete with Editas Medicine.

The other managing directors for the new fund are Bolzon, Sam Colella, Ross Jaffe, Bill Link, Kirk Nielsen, and the firm’s CFO Robin Praeger.