OVP, Looking for a Home Run, Hits Bunt Single With Complete Genomics

3/21/12Follow @xconomy

OVP Venture Partners had one of its portfolio companies go public a little more than a year ago, so the Kirkland, WA-based firm had to have high hopes for the kind of home-run returns that can make up for a lot of misses in a portfolio. But now its investment in Mountain View, CA-based Complete Genomics is looking less like a home run, and more like a bunt single.

Over the past several months, OVP has sold off much of its stake in Complete Genomics (NASDAQ: GNOM) at bargain prices more than 80 percent below their all-time high of $18.55 a share last June.

Last week, OVP executed a series of big transactions in which it sold 1.03 million shares of Complete Genomics stock at prices between $2.80 and $3.28 a share, according to filings with the Securities & Exchange Commission. The sales were made in multiple chunks, and total proceeds weren’t disclosed, but based on multiplying the average stock price and the number of shares, OVP generated more than $3.1 million in proceeds last week, according to an Xconomy review of the filings. OVP, which also made a series of stock sales at similar prices in December, has now seen its ownership in Complete Genomics drop roughly in half—from 2.89 million shares at the time of the company’s November 2010 IPO to about 1.39 million shares as of March 16, according to regulatory filings.

While IPOs are typically a moment to celebrate for venture capitalists, it’s been a roller coaster experience for OVP. Like company executives and other venture investors, OVP was bound by a customary 180-day lock-up period that prevented it from selling its stake right after the IPO, when the stock debuted at $9 a share. Then, last May as Complete Genomics stock was riding high, the company seized the momentum and raised more money, selling more stock at $12.50 a share.

As the stock continued climbing to its peak of $18.55 in June, insiders were barred from selling because the secondary offering had come with another 90-day lock-up period, according to regulatory filings. By the time the second lock-up period expired, the market’s view of Complete Genomics had changed. The company’s stock plunged last August amid delays in delivering the number of complete genome sequences it had promised investors, and general market uncertainty about budget cuts at the National Institutes of Health that could weaken the purchasing power of Complete Genomics’ customers. That phenomenon has also hurt all of Complete Genomics’ major competitors in the fast-moving business of DNA sequencing—including Illumina, Life Technologies, and Pacific Biosciences.

OVP managing director Chad Waite, a member of the Complete Genomics board, declined to comment on the stock sales and what implications they might have for OVP.

It’s unclear from the filings what kind of return multiple OVP is getting from its investment in Complete Genomics, because they don’t say what price OVP paid for its shares.

While OVP still has more than 1 million shares left in Complete Genomics that have a chance to increase in value, the outcome thus far has to be disappointing. Managing director Gerry Langeler, at an OVP Tech Summit in Seattle in May 2010, talked about how long it had been since OVP had a portfolio company go public. “For a while we thought of investment bankers like unicorns, sort of like cute mythical beasts. But they are back,” Langeler said.

Clearly, the Complete Genomics outcome will have some effect on OVP’s future plans for fundraising. The firm, founded in 1983, has over $750 million under management. Its most recent fund, OVP VII and OVP Entrepreneurs Fund VII, together closed on over $250 million in May 2006. While it’s still relatively early to start judging the returns of those funds, the prior fund, OVP VI, was completed with $185 million in October 2001. And that fund—the one which OVP used to invest in Complete Genomics—had an internal rate of return of -16.9 percent as of Sept. 30, 2011, according to data disclosed online by one of OVP’s limited partners, the Oregon Public Employees Retirement Fund. It’s unclear how much the new liquid returns from Complete Genomics will affect the performance of OVP VI.

OVP has a long history in supporting innovation, with more than 130 investments in its roughly 30-year history that have led to 23 IPOs and 30 acquisitions, according to the firm’s website. It has invested in tech, biotech, and cleantech companies, with a strong emphasis on companies in the Northwest. Besides Complete Genomics, its current portfolio includes local companies such as Allozyne, VLST, EnerG2, DataSphere, NanoString Technologies, Talyst, and Adapx.

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  • R

    I wonder who advised them to invest in Complete Genomics? It is a very complicated way to do sequencing. CG is clearly is getting the crap beat out of them by other, simpler methods.

  • Nanostring Founder (@Nanostring)

    Luke,
    the cost basis for the shares can be calculated from the S-1. OVP put in $3M in Series A, $3M in Series B, $3.4M in Series C, $5.5M in Series E, and $6.3M in Series E, for a total of $21M. With 2.89M shares, that comes to around $7.25/sh

    Obviously, when you buy shares for > $7 and sell them for < $3, you cannot call that a bunt single; this is more of a strike-out…

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