UCSD Business School’s Venture Fund Joins Texas Startup’s $16M Deal
After launching its student-run Rady Venture Fund three years ago, UCSD’s Rady School of Management says today it has invested $25,000 in its biggest deal so far—a $16 million Series B investment in Savara Pharmaceuticals of Austin, TX.
Savara, founded in 2007, is in mid-stage development of an inhaled antibiotic to treat methicillin-resistant Staphylococcus aureus (MRSA) infections in patients with cystic fibrosis (CF). The Rady Venture Fund joined with members of Southern California’s Tech Coast Angels in a $7.4 million second tranche for Savara.
Members of the North Texas Angel Network also joined in the new tranche, along with existing investors from the Central Texas Angel Network and The Keiretsu Forum, which led the $8.6 million first tranche of the Series B round in June 2012.
The investment in the specialty biopharmaceutical represents the Rady fund’s second deal since early 2010, according to the fund’s managing director, Lada Rasochova, who also teaches classes in venture capital management.
In addition to the venture funding, the National Heart, Lung and Blood Institute of the National Institutes of Health also awarded Savara a $4 million grant to advance development of AeroVanc, the company’s drug-and-device combination. AeroVanc uses a proprietary inhaled dry powder form of vancomycin in a capsule to treat MRSA-related bronchopneumonia. A pre-measured dose capsule fits into the device, which punctures the capsule to aerosolize the medication for inhalation by patients.
In a separate statement, Savara CEO Rob Neville says AeroVanc is the first inhalable antibiotic to specifically address the growing problem of MRSA lung infection in patients with cystic fibrosis. Savara is moving to Phase 2 trials with just seven employees, according to a spokeswoman for the company.
The Rady Venture Fund previously invested $75,000 in San Diego-based AnaBios, a startup that helps drug developers assess how patients might respond to experimental drugs in clinical trials by testing compounds on human tissue. A third investment is pending.
Rasochova says capital for the fund is donated, rather than invested. So there are no limited partners, and no expectations for venture investment returns—at least not officially. Any investment returns get reinvested in the fund anyway. “Our main objective is education, but we of course want to make great investments as well,” she says.
Rady students get the opportunity through courses in venture finance and capital management to source venture deals, conduct due diligence, and recommend investments. Any proposed investments by the Rady Venture Fund must be approved by one of two oversight committees comprised of professional VC investors.
“We cannot be the sole investor,” Rasochova says. “There has to be an independent investor to lead the round.” All of the deals the Rady fund has done so far were led by members of the Tech Coast Angels, with the Rady Venture Fund basically participating as an individual angel investor.
“It truly, truly gives the students the opportunity to learn hands-on how it works,” Rasochova says.
The investment in Savara also marks a departure from a vow Rasochova initially made to exclude investments in drug development companies (because of the time and costs involved) when the Rady Venture Fund was established. “To tell you the truth, I first ruled the investment out because of the drug development focus,” Rasochova explains in an e-mail this afternoon. “However, students were able to convince me and the investment committee and [we] received an approval to invest.”
While Rasochova cites several compelling reasons for making the investment, she says the Rady students assessing the deal had unexpectedly deep experience in the field. In particular, she says MBA student George Smith is a pharmaceutical scientist and an expert in respiratory diseases.
“Our students did a deep diligence and modeled various scenarios—at the end they made a convincing argument for an investment and why we should make it,” she writes. “So yes, they are a great company and we believe in their success. A secondary benefit is to provide students with real-world experience in drug development process (given that we are in San Diego), which is very valuable and do it under the reduced timeline, cost and lower risk scenario.”