SV Life Sciences, Flush with $523M Fund, On the Hazard of Having a Lot of Dough

3/23/11Follow @xconomy

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therapeutics, and about one-fourth in medical devices, and another one-fourth in healthcare services (although diagnostics get filed under the therapeutic category, and health is classified as part of healthcare services). Staying diversified is important, Ross says, because it enables the fund to shift from one sector to another when valuations get too bubbly in a certain area.

“When things get out of whack in the economy, we can cool off a certain sector,” Ross says, while investing in others so SV doesn’t end up “sitting on our hands.”

While my colleague Ryan McBride has reported that SV is looking to dial up its health IT investing, Ross was pretty coy when I asked him about specific areas of emphasis or where he sees the big ideas. SV says it likes to back proven entrepreneurs, especially people it has successfully invested in before. The firm banks heavily on the management horses.

“We tend not to play the innovator,” Ross says. “We don’t try to be the smartest guy in the room. We look for the best ideas, best market potential, best clinical or platform potential, one at a time. Those ideas tend to come from entrepreneurs. That’s different than some other funds that decide they are going to be visionaries. Our vision has to do with how good the vision is of the people we back.”

While there are certainly entrepreneurs who fit the bill, I couldn’t help but come back to the point about peer venture firms that SV feels comfortable investing with. Ross didn’t want to name them, because he said he’s afraid he’d accidentally leave someone out. But he said only about three or four life sciences funds remain of a similar size, similar ideas, and a similar diversification strategy. There are some smaller funds that SV can syndicate with on certain deals, and large funds it can work with on certain deals.

It will certainly be interesting to see who invests with whom in the next couple of years as the venture capital shakeout continues. It used to be that a venture investment was a sign of validation for a company—but now it could also be a sign of mutual confidence among investors that they have staying power.

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