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.”
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 business in some way, either by raising smaller funds for the future, delaying fundraising plans, or getting out of healthcare investing altogether. Morgenthaler Ventures and Advanced Technology Ventures let their healthcare partners split off from their tech partners, to form a fledgling healthcare-only firm called Lightstone Ventures. Earlier this month, we reported here at Xconomy about OVP Venture Partners’ decision to shut down operations after nearly 30 years in business.
Skyline is one of the big names in biotech venture capital, and surely one of the go-to firms for most biotech entrepreneurs pursuing big ideas. The firm, founded in 1997, has about $800 million under management. Some of its more visible winning investments have been in San Diego-based Novacardia (acquired by Merck); Madison, WI-based NimbleGen Systems (acquired by Roche); Louisville, CO-based Medivance (acquired by C.R. Bard); Cambridge, MA-based Sirtris Pharmaceuticals (acquired by GlaxoSmithKline), and South San Francisco-based KAI Pharmaceuticals (acquired by Amgen).
Skyline has also backed a number of companies that made it through the IPO gauntlet, including Santa Clara, CA-based Xenoport (NASDAQ: XNPT), Redwood City, CA-based AcelRx Pharmaceuticals (NASDAQ: ACRX), and Mountain View, CA-based MAP Pharmaceuticals (NASDAQ: MAPP). Some of the younger companies that still show promise in its portfolio include South San Francisco-based Sutro Biopharma, Cambridge, MA-based Genocea Biosciences and Watertown, MA-based Tetraphase Pharmaceuticals.
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.
“We’re not going out of business,” Hoffman says. “We have dry powder, we are making new investments, and we are excited about our portfolio companies.”
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