Exclusive: Skyline Ventures Cuts Partners, Postpones Fundraising

10/26/12Follow @xconomy

Skyline Ventures, one of the high-profile venture firms in the U.S. biotech and medical device business over the past 15 years, has let go three of its six partners and postponed plans to raise a new venture fund, Xconomy has learned.

Skyline, which has offices in Palo Alto, CA, Waltham, MA, and Stamford, CT, raised its most recent fund, worth $350 million, back in October 2007, before the Great Recession struck and cast a pall over the venture industry. Steve Hoffman, a Skyline partner based in Boston, says the firm has been “very selective” since, and still has some money left from that fund to make three or four more investments. But the firm is downsizing now because he says market conditions are poor, and it isn’t the right time yet to deliver a new fundraising pitch to limited partners—the pensions, endowments, and foundations that provide the money VC firms all need. Skyline hopes to raise its next fund in 2013, Hoffman says.

“Normally we’d be thinking about fundraising now,” Hoffman says. “But we’ve decided to postpone it for a year or so and see what the LP (limited partner) environment looks like then.”

Steve Hoffman of Skyline Ventures

Hoffman didn’t say which partners are leaving the firm, although he said the three partners will be departing toward the end of 2012. The partners on their way out will still participate in partner meetings, and keep their seats on the boards of Skyline portfolio companies, Hoffman says.

Skyline’s cutbacks are part of a big ongoing story the past couple years, in which the biotech venture capital industry has gone through a historic shrinkage. The financial crisis of 2008 made it much tougher for venture-backed biotech companies to go public, or command big-money acquisitions—the two traditional ways VCs generate liquid returns for their supporters. The Kauffman Foundation, one of the prominent limited partners that backs venture firms, recently delivered an influential critique of the VC industry and how it has essentially failed to deliver on its promise, as partners keep collecting what the foundation regards as excessive management fees. A few biotech funds have been raised in the past 12 months, by New Enterprise Associates, Kleiner Perkins Caufield & Byers, Canaan Partners, Sofinnova Ventures, and others, but many firms have come away from fundraising road shows with some serious battle scars.

“The model of the biotech venture industry is not viewed as attractive by the guys who put money into us,” Steve Burrill, the founder of San Francisco-based Burrill & Company, told me back in June. “I’ve had fund managers look me in the face and say ‘we did biotech before, and it didn’t do well. We’re done.’”

Last year, CMEA Capital, Scale Venture Partners, The Column Group, Versant Ventures, and Prospect Venture Partners all made public statements about their decisions to cut back their life science investing … Next Page »

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  • Venture Creativist

    We are watching a slow motion VC train wreck as these chaps fight for the last bits of left over cash on hand to keep paying themselves a 3% management fee while providing a whopping 4% return (see below). The Venture industry is dead and the model is broken as a direct result of VC greed, arrogance, lack of transparency, creative vision, or balls. The firms left are now in a mode of self destruction/preservation as they back stab each other, toss out the most Jr. partners and fight for the last few dollars on hand and waste everyones time posing as real investors. “Sorry but your too early for us” is your new tag line. What were ending up with is a bunch of 60 year old guys who have not run a real company in 30+ years and won’t bet on anything that is not revenue positive with 5 years of solid growth, no debt, oh and buy the way we can get a 70% ownership stake for a minor investment with all the screw you in the end provisions we can toss in. Plan B is to keep on booting the young partners to the curb and you can probably whittle the firm down to 2 or 3 partners then the current fund crumbs will get you comfortably to retirement…. just in case the LP’s don’t forget the last 10 years of dismal Venture returns.

    “Hoffman, 58, wouldn’t discuss Skyline’s investment returns over the phone yesterday, and I was unable to find much public data on the performance of its five venture funds, raised in 1997, 1999, 2001, 2004, and 2007. Skyline’s third fund, raised in 2001, appeared to have generated a 4 percent internal rate of return through the end of 2010, according to data reported by the California Public Employees Retirement System (CalPERS), and published by Fortune.

    Without getting into details about Skyline’s funds, from good years and bad, Hoffman said generally that the firm has performed well when compared with its peers. It is still receiving and evaluating new business plans, he says.”

  • Pharma Guru

    VC’s have made investments in drugs and drug discovery platforms that those of us with decades in successful drug discovery and development wouldn’t have given a second look at. They’ve been burned by their own lack of expertise in areas they chose to invest in.