Speculation has been rampant in recent months about the future of San Diego’s Forward Ventures, which has been one of the region’s leading life sciences VC firms for more than 15 years.
Partner Joel Martin, who joined Forward in 2001, left the firm in October and another partner, Stuart Collinson, is said to be leaving as well. Both are prominent figures in the biotech industry. Collinson was the chairman and CEO of San Diego’s Aurora Biosciences before joining Forward in 2002, and became a director at Boston’s Vertex Pharmaceuticals after Vertex acquired Aurora Biosciences.
Editor’s note: Story is updated below with more details on Collinson, who plans to remain.
So I sat down with founding partners Stan Fleming and Ivor Royston, who were anxious to dispel rumors about Forward’s future and to set the record straight about the changes underway.
“We’re sometimes amused by the feedback we get from the marketplace,” Fleming says. “Essentially, Forward is here still. We expect to be here for a long time. Our existing funds have a number of years to run, and we’re committed to creating some new funds.”
But as Royston wrote in a newspaper op-ed piece last summer—and as other biotech VCs have been saying as well—the traditional venture model for funding biotech startups is broken. Royston is particularly concerned about a widening “funding gap” for early-stage drug development, as venture capital firms have increasingly focused their investments exclusively on compounds already in or approved for clinical trials. He says the trend stems partly from the recent dearth of IPOs for venture-backed biotechs, which makes it far harder for VCs to recoup their investments in early-stage deals within the 10-year lifespan of most venture funds.
“The business guys have proven pretty conclusively that it’s not working,” Fleming says of VC investments in early-stage biotechs. “It’s requiring some new approaches, particularly on the business side, so we’re not [invested] in these companies forever.”
The changes underway at Forward Ventures are intended to adapt to the new reality, the founders explained. Their basic concept is to go as lean as possible, partly by operating as “virtual” VC investors who outsource as much as possible. “So outsourcing has come to our industry too,” Royston says. “So much of what we do can be done at much lower cost overseas.”
The firm that invested in roughly 66 startups since it was founded in 1993—and which has just over $400 million in assets under management—has eliminated its roster of principals, senior associates, and associates. The partners confirmed that Collinson plans to leave Forward Ventures, but declined to elaborate. Collinson did not respond to an e-mail inquiry yesterday.
Update at 10:40 am 1/7/09: Collinson contacted me after this story was posted to say he is not, in fact, leaving the firm. He told me, “I am a director of five portfolio companies and am committed to Forward and our LPs to see these companies through to a successful exit.”
Royston, who also contacted me at Collinson’s request, clarified what he told me earlier, saying in an e-mail, “Stuart plans to fulfill his partner responsibilities at Forward Ventures for the life of the Forward Ventures V fund, which is not until 2013. We did not elaborate on any new fund plans that Stuart has. Even if Stuart raises a new fund outside Forward Ventures, he will still have ongoing responsibilities at Forward ventures for his FV5 portfolio companies until 2013.”
In our discussion, Royston described the changes as “an evolution to new initiatives and to new funds. You cannot be static in this business or else you fail.”
Among their new initiatives is a decision by Royston and Fleming to independently raise capital for separate-but-related venture funds. They described their concept as a much smaller version of OrbiMed, the New York-based healthcare investment firm that manages a family of VC funds and has approximately $5 billion in assets under management.
It wasn’t clear to me what the different focus for each fund would be, except that each would reflect Royston and Fleming’s preferred investment strategy. Occasionally, they both would join in the same deal. It’s also unclear what kind of reception their independent-but-related approach will get from pension funds, endowments and other institutional investors who put money into new venture funds.
“Stan and I are going to be the general partner of each firm, adding people as needed to fulfill the objectives of each fund,” Royston says. Each fund would recruit partners to help manage the investments, but “associates become a luxury,” Fleming says.
The new funds will likely be smaller and more tightly focused, and Fleming and Royston say they will be working to align the investments from each fund more closely with the big pharmaceutical companies that represent the best exit for VC investments these days. He describes the separate-but-related funds as “kissing cousins,” and says they will operate under the same umbrella as “the Forward Venture family of funds.” They also envision a heavy emphasis on cutting their costs and increasing efficiencies, as Royston says, “because we can’t make money in biotech unless you can reduce the cost of the pre-clinical operations.”