Former AOL chief launches brain-focused venture fund

The Brain Trust Accelerator Fund, a venture capital fund launched by former AOL executive Steve Case to finance startups working to solve brain-related health problems, has held an initial close and expects to finish fund-raising in Q1, sources tell VCJ.

The Burlingame, Calif.-based fund has a $50 million target and launched in April 2006 as a spin out of the Washington, D.C.-based nonprofit Accelerate Brain Cancer Cure, known as ABC2. The organization’s board includes Electronic Arts CEO Larry Probst and John Doerr of Kleiner Perkins Caufield & Byers. It was founded by Case’s brother Dan, who died of a brain tumor in 2002 at the age of 44.

Case tapped John Reher, the founding CEO of ABC2 to head the Brain Trust Accelerator Fund. It’s a natural choice. Reher co-founded early stage health care firm Medicus Venture Partners. Medicus has an impressive track record, with six of its 24 investments acquired, five that have gone public and one currently in registration, according to Thomson Financial (publisher of VCJ).

It will focus on technologies that can deliver drugs across the blood brain barrier, a membrane that separates the central nervous system from the circulatory system. It can filter drugs in the blood stream and prevent them from reaching the brain. The fund is also interested in personalized medicine and molecularly targeted therapies for a variety of brain disorders.

It’s no surprise that the fund would be interested in personalized medicine. Critics say creating medicine that will only work for a few people, often those with similar genetic characteristics, can be racist. But venture firms are embracing the idea, especially Kleiner Perkins. Brook Byers has been working on personalized medicine for some time. Doerr sat on the ABC2 board in 2005.

The Brain Trust Accelerator Fund isn’t the only brain fund to go looking for investor dollars this year. Science Futures, a firm founded by former Techno Venture Management (TVM) advisor Nola Masterson, launched a $100 million neurotech fund this summer.

Even health care investors without a dedicated fund are interested in beefing up their brain teams. HLM Venture Partners added neurosurgeon T. Forcht Dagi to its team this summer as a general partner. HLM snagged Dagi from Cordova Ventures, where he was a managing partner.

Brain treatments have become big business in the last 20 years, with the rise of drug prescriptions to treat depression and attention deficit hyperactivity disorder. VCs had at least one brain-technology IPO this year with Northstar Neurosciences (Nasdaq: NSTR). The company builds a device that stimulates the brain with an electronic shock to help stroke victims recover their mobility. The stock was trading at $12.50 last week, slightly below its $15 May offering price. It was backed by AEA Investors, Canaan Partners, Domain Associates, Mayfield Fund and others. —Alexander Haislip