It’s been a transition year for Atlas Venture. Last October, the Cambridge, MA-based firm announced its tech and biotech teams would part ways and raise their own funds.
The biotech group, which kept the Atlas name, has just settled into its new digs in the heart of Kendall Square, Cambridge’s biotech epicenter. It is also announcing this morning that it has raised its tenth fund, $280 million to seed and develop a group of new biotechs.
The still-unnamed tech group has stayed in the Davenport Building on 25 First St. in Cambridge; Atlas is now based in the 400 Technology Square building. The firm is also naming a new CFO, former Summerhill Ventures CFO Ommer Chohan.
About 75 percent of the cash in this latest fund comes from existing limited partners, according to Atlas partner Bruce Booth (pictured above). The remaining 25 percent comes from new LPs, which include a number of university endowments and foundations. The fund was oversubscribed; Atlas was originally looking for $250 million. Booth says Atlas had to dial back some investors to make room for others, and turned a few potential LPs away.
After a post-recession period in which venture capital got a bad rap for diminishing returns and “broken models”—a common refrain echoed by the scathing 2012 Kauffman Foundation report—the last couple years have brought a steady returning interest in biotech.
“As fundraisings go, having done this multiple times, this was one of the smoothest and most well received fundraises that I’ve been a part of,” Booth says.
Booth says Atlas found its niche over its past few funds, and will continue investing the same way. Atlas used to do a mix of early and later-stage deals, and would back companies across the life sciences spectrum, including diagnostics and specialty pharmas.
Atlas is now strictly an investor in novel therapeutics, and about 80 percent of those companies, Booth says, are seedlings incubated within its offices.
To manage risk, Atlas mixes in a few different approaches. About half its startups are drug discovery platform companies: more capital intensive and riskier companies pursuing new areas of biology. From Atlas’ previous $265 million fund in 2012, some of these startups include Raze Therapeutics and Padlock Therapeutics.
The other half of these startups are less risky, leaner models: startups built around a single asset or program. Atlas often strikes option-to-buy or other deals with drug companies for these startups up front (like Annovation Biopharma’s deal with The Medicines Co.), although Zafgen (NASDAQ: ZFGN), a startup incubated within the firm in 2006 and built around a single obesity drug, has become a public company.
Booth estimates Atlas will start and invest in four to six new companies in each year of the fund’s roughly four-year life cycle. That means it could seed some 20 to 25 companies, but some of the seed projects never make it to a more formal Series A round. (Booth says anywhere from a third to half of Atlas’s seed projects end up on the cutting room floor).
Atlas typically syndicates its seed rounds, which can be anywhere from $500,000 to $2 million, but the checks it hands out on its own in those rounds can be as small as “a couple hundred thousand [dollars].” Booth says Atlas could put $10 million to $20 million into single companies over their lifespan.
Neuroscience and neurodegenerative diseases remains one of the firm’s areas of focus, and it expects to add to portfolio companies Rodin Therapeutics, Ataxion, and Mnemosyne Pharmaceuticals. Since the start of 2014, Atlas has also started companies targeting gene editing (Intellia Therapeutics), cellular immunotherapy (Unum Therapeutics), oncology (Raze, Surface Oncology), autoimmune disorders (Padlock), pain (Quartet Medicine), rare diseases (Lysosomal Therapeutics), and synthetic biology/antibiotics (Synlogic, Spero Therapeutics).
Booth says the pre-split Atlas biotech portfolio has generated “very strong venture returns, and the oversubscribed fundraise is evidence of that,” but he declined to give specific numbers.
He says 10 of the firm’s startups have either been bought or gone public in the last few years. Zafgen, Vitae Pharmaceuticals (NASDAQ: VTAE), Horizon Pharma (NASDAQ: HZNP), and Egalet (NASDAQ: EGLT) have all gone public. Arteaus Therapeutics, Annovation, CoStim Pharmaceuticals, and Stromedix, among others, were acquired.
Booth also added that Atlas’s multi-year deal with Shire (NASDAQ: SHPG) to invest in startups working on rare diseases has ended. The most notable transaction to come from the pact: a 2013 deal with Nimbus Therapeutics. Booth is on Shire’s scientific advisory board, however, and says Atlas “still maintains very close relationships” with the company’s R&D team. (Shire wasn’t an LP in Atlas’s ninth fund, he said).
With the Atlas split, Booth says the biotech side will no longer invest in digital health or healthcare IT. The one exception is ZappRx, a startup aiming to streamline the ordering process for specialty meds. Atlas just participated in its $5.6 million Series A, and the biotech-only Atlas will keep the investment with partner Jean-Francois Formela actively helping the startup, which just cut a deal with Zafgen.
“That’s a particularly unique circumstance,” Booth says. “That was really a legacy of the hybrid fund model.”
The tech group, meanwhile, for now calling itself FKA (Formerly Known as Atlas) raised a $200 million fund of its own last month and started a contest to pick its new name. The winner’s reward is $50,000 and a place as a limited partner.
Check out Booth’s blog today for more on the new fund.