[Corrected 10/29/15, 12:52 am. See below.] Boom or not, there’s always a need for startup capital in biotech. A new source is about to emerge. The founders of LabCentral and Cambridge BioLabs, well-known biotech incubators in Cambridge, MA, are on the verge of closing what they hope to be a $150 million early-stage fund for biotechs seeking seed and Series A cash, Xconomy has learned.
The fund, called Bioinnovation Capital, is part of a broader strategy to foster biotech startups. The group is also building new incubators in San Diego and Raleigh-Durham, NC, which the Bioinnovation partners will manage. Those sites, along with LabCentral and an incubator partner in the San Francisco Bay Area, will form “a national network of incubators and financial sources,” says Bioinnovation Capital general partner Susie Harborth.
According to Harborth, Bioinnovation Capital will look to invest its cash in about 15 companies, perhaps more. The companies could be tenants of LabCentral and its sister facilities, but the fund could look outside the incubators as well. Likewise, the incubator tenants aren’t tied to the fund. “There are no strings attached,” says Harborth.
LabCentral alumni have already attracted significant venture funding. These companies include Yumanity Therapeutics, Unum Therapeutics, and Surface Oncology, which have raised more than $100 million combined.
Bioinnovation’s idea is to use the incubators as a window onto each area’s early biomedical ideas and innovations, whether they’re housed in the facilities or not. For example, LabCentral turns away far more applicants than it admits to its 28,000-square foot shared space, and those applicants might also be potential investments for Bioinnovation Capital, says Harborth.
In addition to Harborth, the fund’s partners are Johannes Fruehauf, who runs LabCentral; Peter Parker, a longtime VC at Ampersand Ventures; and Eric Linsley, who was an investor with Pappas Ventures in Durham, NC.
Freuhauf and Parker launched the nonprofit LabCentral in 2013 with private sponsors as well as $5 million in Massachusetts public funding via the Massachusetts Life Sciences Center.
The Bioinnovation partners have been making angel investments since 2009, but this will be their first institutional fund.
Bioinnovation also lists Douglas Crawford as a senior advisor. Crawford runs much of the San Francisco-based multi-site incubator QB3, which has ties to the University of California. Crawford also oversees the venture group Mission Bay Capital, which has provided a template for Bioinnovation. Mission Bay has raised two funds, the second one topping out at $25 million, to take advantage of its proximity to QB3 incubator tenants. Several of them have taken Mission Bay investments. [This paragraph has been changed to reflect that Crawford runs much, but not all, of QB3.]
Harborth says QB3, LabCentral, and the two as-yet-unopened incubators will provide the four biotech clusters—Cambridge, San Francisco, San Diego, and North Carolina—more coordinated access to “space, resources, and capital.”
Harborth says the group hasn’t decided whether the San Diego and North Carolina incubators will be nonprofit, like LabCentral, or for-profit, like Cambridge BioLabs. They have no plans to put a site in the Bay Area, she says.
The fund size is small compared to funds raised by other early-stage biotech venture groups such as Third Rock Ventures, Arch Venture Partners, Flagship Ventures, and Versant Ventures.
But even if Bioinnovation falls a bit short of the $150 million goal, it’s significant. Biotech companies generally attract $4 billion or more in venture dollars every year; last year the total nearly hit $6 billion, and this year’s biotech bets should top that number. But those billions are dominated, especially during the boom years, by late-stage investments meant to push companies quickly toward an IPO. Occasional Series A fundraisings of massive size—such as the Series A rounds raised by Juno Therapeutics (NASDAQ: [[ticker:JUNO]]), Denali Therapeutics, and Gritstone Oncology—mask the fact that early stage funds are still hard to come by. If biotech funding follows the market correction and declines in the next few quarters, the Bioinnovation fund could stand out even more.
