Investor Growth Capital Starts Anew as Independent VC Firm, With Evergreen Fund Worth $1.3B

9/28/11Follow @arleneweintraub

Today Investor Growth Capital (IGC), which has offices in New York City and Menlo Park, CA, announced that it is breaking free of its parent company, Stockholm, Sweden-based Investor AB. The newly independent IGC is hitting the ground with $300 million in fresh capital from Investor AB and a portfolio of companies with a total market value of $1.3 billion. Investor AB will be the sole limited partner in IGC.

IGC’s new fund—its sixth—has a distinctive “evergreen” structure, says its president, Steve Campe. That means that instead of maintaining a traditional venture-capital structure, in which a fund contains a certain amount of capital up front that’s drawn upon until it runs out, IGC will keep a portion of the returns generated by its portfolio companies, and pour that money back into the fund. “We’re retaining the proceeds over time to re-invest,” Campe says. “The $300 million is cash in the kitty to start, but we also expect the portfolio to generate more capital.”

Investor AB, an industrial holding company that was founded in 1916, started IGC a decade ago. It built the unit into a fund with 100 portfolio companies and $1.5 billion in assets. IGC invests mainly in what it calls “expansion-stage” technology and healthcare companies. “No one would confuse us for a seed-stage fund,” Campe jokes. “If we’re investing in a tech company, it’s probably one that has already commercialized its product and is producing revenues.” Pharmaceutical and medical-device companies only catch IGC’s attention if they’re beyond the discovery stage and have already achieved proof-of-concept, he adds.

IGC has made $1 billion in the last five years from a series of successful sales of its portfolio companies, including, most recently, the acquisition of San Jose, CA-based BlueArc by Hitachi Data Systems for $600 million. This year, IGC has made more than $100 million in new investments in companies such as Santa Clara, CA-based WhiteHat Security and Menlo Park, CA-based Transcend Medical.

Investor AB allowed IGC to invest in an evergreen-like fashion, Campe says. That gave the firm the firm some freedom to practice patience where other VC firms might not. For example, IGC was invested in Swedish medical-device startup Carmel Pharma for 14 years before Franklin Lakes, NJ-based Becton Dickinson bought it in August. “The rest of the shareholder base turned over three times,” Campe says. The acquisition price was not disclosed, but “it was one of the best transactions in our history,” Campe says.

With the new fund and independent structure, IGC will continue its practice of supporting its portfolio companies through periods of rapid expansion, says Campe. IGC’s international presence—which includes offices in Beijing and Stockholm—will help its portfolio companies to expand overseas, he says. “With our international footprint, we have a lot of on-the-ground expertise to share.”

Being independent will allow IGC to formalize the evergreen structure, Campe says, and will free the venture firm from the overall financial concerns of the parent company. “As a business unit we always had strong access to capital, but we were a ‘balance-sheet’ investor,” he says. “As an independent company, we will be able to focus purely on our business.”

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