MB Venture Partners closes second fund, looking for more lead investor opportunities

Memphis Business Journal
October 6, 2006
By Christopher Sheffield

MB Ventures Partners has raised $54 million for its second fund and for the first time has attracted investments from two large institutional investors outside Memphis, Texas-based Stanford Financial Group and the Arkansas Institutional Fund, a Little Rock-based fund of funds.

"It's a validation to our city that (investors) outside the region are putting money in our fund," says Gary Stevenson, managing partner of MB Venture Partners.

J.R. 'Pitt' Hyde III and the Shelby County Retirement System -- both significant investors in the first fund -- were the two largest investors, while other investors included high net worth individuals from Memphis and a university endowment, Stevenson says.

Attracting endowment dollars is an important step because those investors are typically the hardest to cultivate, and it helps to prove to the venture capital community and other investors that the venture capital firm is operating a good business.

"They are tremendous limited partners for our fund," Stevenson says.

With the closing of the $54 million Memphis Biomed Ventures II, LP, Stevenson's firm has now raised $76.4 million since it was created in 2001 to specifically focus on investments in the life sciences area, with an eye toward products in the musculoskeletal area.

It has invested in 11 companies, the most recent being a nearly $5 million investment in Anulex Technologies, Inc., a spinal-repair company, from the second fund.

MB Ventures has already made two investments from the second fund, the first going last year to Kereos, a St. Louis-based company that develops therapies to treat cancer and cardiovascular disease and complementary imaging technologies.

Stevenson, a certified public accountant and former investment banker, believes MB Ventures will invest in 10-12 companies from the second fund.

On the most recent Anulex investment, MB Ventures was a lead investor as part of the $20 million Series C fundraising, a position Stevenson says MB Ventures believes it can do more as its fund size and reputation grows.

As the lead investor, MB Ventures is more in control of setting the terms of the deal, helping select other funds, if needed, conducting most of the due diligence and is guaranteed a seat on a company's board of directors, thus giving the firm even more responsibility and oversight. It is also the first investor to be repaid if and when there is an IPO or buyout.

Besides looking for more investment opportunities, little will change about MB Venture's core investment strategy, Stevenson says. It will still invest roughly the same amount of capital -- about $5 million per deal -- in the same type of life sciences companies largely in the Southeast and Midwest, an area where the firm can get the most for its investment dollar.

"It is an underserved market for VCs and that translates into better priced deals for us," he says. "There's less competition."

Seven of the nine companies invested in the first round were in that geographic area. Only three investments have been in Tennessee, with one, GTx, being in Memphis.

If you're trying to build an industry around the biosciences area, it's nice to have a fund like MB Ventures in your back yard, says Steve Bares, president and CEO of the Memphis Bioworks Foundation, the group responsible for developing UT-Baptist Research Park in Downtown Memphis.

"Now there is a place for certain types of technology to be commercialized right here in Memphis," Bares says.

If there wasn't that option, companies would have to look outside the area, and if they secured the funding, they might be forced to move the company from Memphis.

"Now, the fact that they can raise capital in your town meant they can stay there, and the community gets the benefits," he says.

But beyond that, first and foremost is that the closing of the second fund is a major event and one that speaks to the management team at MB Ventures, Bares says.

"Accolades should be given to that whole group."

MB Venture Partners

Venture capital firm

Managing partner: Gary Stevenson

Address: 17 West Pontotoc, Suite 200

Phone: (901) 322-0339

Web site: www.mbventures.com

csheffield@bizjournals.com | 259-1726