Avalon Ventures, Coming Off Zynga Investment, Raising 10th Fund

7/31/12Follow @bvbigelow

Venture investing in the life sciences has been declining over the past year or so, along with a contraction in the number of VC firms that are actively investing. Yet San Diego’s Avalon Ventures, which also has a strong presence in Boston, seems to be running contrary to the industry’s overall trend.

The venture firm—which closed its ninth and largest fund only about 18 months ago—is now embarking on fundraising for its 10th investment fund, according to a Dow Jones report yesterday by Hilary Canada. The firm plans to raise at least $200 million, according to the report.

Avalon founder Kevin Kinsella was mum on the topic when I talked with him by phone, saying he’s precluded by legal concerns from talking at this time.

Still, it’s worth noting that it typically takes a venture firm close to three years to invest a new fund, yet Kinsella and partners Jay Lichter, Rich Levandov, Steve Tomlin, and Brady Bohrmann (with help from venture partner Court Turner) committed the resources of Avalon IX in about half that time. The firm also focuses its resources on seed and early stage companies, often creating its own opportunities by founding its own life sciences and information technology startups.

The most prominent name in Avalon’s portfolio is probably Zynga, a prescient investment that was led by Levandov, who is based in Boston. More recently, the firm has backed a couple of Cambridge, MA-based startups, Backupify and Kinvey, as well as Seattle’s Cardeas Pharma, and San Diego’s Mogl, AnaptysBio and Awarepoint.

Much of the Dow Jones report concerns the value of Avalon’s stake in San Francisco-based Zynga (NASDAQ: ZNGA). Kinsella told me a couple years ago that Avalon’s $5.3 million investment in the maker of casual games like FarmVille and Mafia Wars would probably yield the firm’s biggest returns.

But with Zynga stock now trading around $3.09 (the company’s valuation is about a third of what it was at the time of its IPO), the Dow Jones report suggests the value of Avalon’s stake in Zynga has shrunk as well. It notes that Avalon sold a small portion of its stake in early 2011, but retained 34.7 million Class B Shares—a stake that was worth roughly $347 million at the IPO price of $10 a share.

It’s also possible, though, that Avalon conveyed some of its Class B shares to Zynga’s founding CEO, Mark Pincus. As Connie Loizos noted yesterday at peHub, Zynga disclosed in a regulatory filing last week that Pincus now controls just over 50 percent of the total voting power as of July 24.

“It’s not entirely clear when, but apparently investors in Zynga Class B stock sold their shares to Pincus,” Loizos reports. “Since Class B shares are entitled to 7 votes (as opposed to 1 vote for Class A shares), that pushed Pincus over the 50 percent hurdle.”

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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