BOSTON – Armed with a Small Business Investment Company (SBIC) license and capital from several Pittsburgh-area institutions and endowments, Caduceus Health Ventures in late January wrapped its first fund-raising effort.
The $60 million Caduceus, named after the insignia symbolizing the medical profession, will invest in medical-related companies ranging from devices to bioinfomatics and drug discovery. Although the fund has no geographic restrictions, its close ties to Pittsburgh’s intellectual and clinical resources will provide a key source of deal flow and expertise.
The vehicle’s primary sponsor is Pittsburgh-based UPMC Health System, a medical center affiliated with the University of Pittsburgh that invested more than $16 million of a $20 million July 1998 first close. After Caduceus secured $40 million with its SBIC license in late December, UPMC a month later sold $1.5 million of its share in the fund to the University of Pittsburgh and Pittsburgh-based Carnegie Mellon University. PNC Equity Management, also in Pittsburgh, invested $500,000 of the final tally.
Other limited partners in the first close included Sanderling Ventures in Menlo Park, Calif., which invested $1 million, as well as Mellon Ventures in Pittsburgh and TVM Techo Venture Management in Munich, Germany, which invested $500,000 each.
UPMC had been evaluating venture capital investment opportunities when introduced to Caduceus’ founding partner, William Golden, in August 1998.
Tapping Pittsburgh’s Potential
“Our perception is we have many interesting and novel technologies,” said Scott Lammie, executive vice president of UPMC’s diversified services division. UPMC hopes that the fund’s strong ties to investors and institutions in Pittsburgh will attract new talent to the region and believes the relationship with Sanderling and TVM will provide opportunities for some of the area’s innovations and research to gain wider recognition.
Caduceus’ managers clearly have recognized Pittsburgh’s potential and have opened an office there in addition to its offices in Boston and New York. “The university and clinical resource base in Pittsburgh is outstanding and underutilized by the venture community,” Mr. Golden said.
Carnegie Mellon President Jarod Cohon last spring mentioned the idea of creating a venture fund in the Pittsburgh area (VCJ, June 1998, page 6). In December, the university released its third annual Entrepreneurial Vitality Scorecard, which showed that Pittsburgh lagged behind national averages for entrepreneurial performance and called for an effort to retain and attract high-potential entrepreneurs.
Until its investment in Caduceus, however, Carnegie Mellon still had not backed a venture fund that focused on the region. “We were delighted when this emerged,” Dr. Cohon said. “[Pittsburgh needs] more early-stage money.”
But Caduceus is merely a first step, Dr. Cohon emphasized. The region needs to find additional ways to back software and information technology entrepreneurs. While he confirmed that there were ongoing discussions to attract venture capital to the region, Dr. Cohon declined to name the institutions involved.
Keeping Doors Open
UPMC’s Mr. Lammie emphasized that none of Caduceus’ limited partners was exclusively tied to the fund, adding that he believed Carnegie Mellon and Pittsburgh were both actively seeking other relationships intended to spur Pittsburgh’s entrepreneurial community.
“We all have a common vision of [fostering Pittsburgh’s] local economic development,” he said.
Caduceus is managed by Mr. Golden and George Sing, who joined the firm as a general partner in March 1998. The firm at press time shared office space with TVM in Boston but was searching for its own office near Massachusetts Institute of Technology, Mr. Golden said. Caduceus may add a junior partner sometime this year.
The vehicle, which plans to back about 15 companies with between $100,000 and $4 million each, features standard compensation terms with a 1% investment from the general partners.