Health-Care VC Shines Spotlight on IT –

While a lot of VCs are focusing more and more on health care investments, longtime health care investor Frazier & Co. is eyeing information technology.

The Seattle-based VC firm, which has mostly invested in health care companies for more than a dozen years, has started raising a new fund, Frazier Technology Ventures II. The fund has a $250 million target and had secured about $100 million in commitments as of late March, according to a filing with the Securities & Exchange Commission.

It’s not the first information technology-focused fund for the firm. Frazier launched a $47 million tech vehicle in 2000. But at a time when others are stepping up their health care spending – such as Sprout Group, which has dumped IT and reorganized as Sprout Healthcare Ventures – Frazier’s IT-driven fund is noteworthy.

Considering that Frazier raised a $400 million health care vehicle in 2001, no one would have blamed it for bailing on IT once the bubble burst and life sciences investing became the next big thing. But Frazier has kept its feet firmly planted in both markets, and is now in the midst of expanding its IT muscle with its new fund.

Len Jordan, a general partner with Frazier Technology Ventures, declined to discuss the fund-raising effort, citing SEC restrictions. He did say, however, that the group’s investment strategy has changed since inception. In particular, it has largely moved away from the convergence of health care and technology due to a lack of quality deal flow.

“We are mostly focused on enterprise software, wireless software and wireless telecom infrastructure,” Jordan explains. “We will still be very opportunistic in bioinformatics and medical device deals where software plays a major role, but it will be a minor part of what we do.”

The initial Frazier Technology Ventures fund did not invest in any health care companies. Instead, it was filled up with IT plays like Aprimo Inc., eCommerce Industries Inc., Hynomics Corp., MidStream Technologies Inc. and Neah Power Systems Inc.

That first fund also featured a slightly different general partner makeup from the new vehicle. The managing partners are still former Microsoft Corp. executive Dan Rosen and Frazier founder Alan Frazier, who also serves as a GP on the health care funds.

Jordan and Gary Gigot, both former venture partners, will be promoted to general partners on the new fund. Gigot was an original member of the Frazier Technology Ventures team after a stint with Visio Corp., while Jordan came aboard in 2002 after having served as a senior vice president with RealNetworks Inc.

Original GP Richard von Riesen is no longer with Frazier, after realizing that his later-stage investment interests were a poor fit with the group’s early-stage focus.

Meanwhile, despite Frazier’s new IT fund, life science and health care companies should have no problem finding investment dollars in 2004 as more and more firms are going after these markets, a trend that sprung up late last year as several funds either closed or were near their target. Leading the charge has been New Enterprise Associates, which closed a $1 billion fund for health care and life sciences.

After more than three decades of investing in software and communications companies, Sprout will invest only in health care deals going forward, marking a permanent shift away from its longtime investment strategy. Sprout plans to raise up to $400 million for a new fund this year.

Burrill & Co. kicked off the New Year by announcing the close of its Burrill Life Sciences Capital Fund with $211 million.

OrbiMed Advisors last fall closed Caduceus Private Investments, a $300 million vehicle for late-stage biotech companies; Three Arch Partners raised $450 million for deals in biopharmaceuticals and health care; and Abingworth Management raised $350 million for early-stage therapeutics and medical devices.

Frazier & Co.

www.frazierhealthcare.com

Founded: 1991

Locations: Seattle (headquarters) and Palo Alto, Calif.

Fund Name: Frazier Technology Ventures II (in midst of fund-raising).

Target: $400M

Capital Under Management: $800M

Key Execs: The investors for the IT fund will be Managing Partners Alan Frazier and Dan Rosen and General Partners Len Jordan and Gary Gigot.

Previous Funds: Frazier Technology Ventures I closed in 2000 at $47.3M; Frazier Healthcare IV closed in 2001 at $400M.

Focus: The IT fund will focus on enterprise software, wireless software and wireless telecom infrastructure and be “opportunistic” in bioinformatics. Frazier invests in companies nationally. About half of the firm’s portfolio is located in Northern California.

LPs: Undisclosed.

Brief History: Alan Frazier, a former executive vice president and CFO of Immunex Corp., founded Frazier Healthcare in 1991. Since its inception, the firm has invested in more than 70 emerging health care companies, primarily in the biotech and medical device sectors.

Sample Investments: In March, one of Frazier’s portfolio companies, CoTherix Inc. – a developer of treatments for ling diseases – filed a $60M IPO. Frazier participated in CoTherix’s Series C round last year and in its Series D round in February. On the tech side, Frazier has invested in Neah Power Systems, a provider of fuel cells for devices; Confer Software, a maker of business process management software, and which was acquired three years ago; and Hynomics Corp., an enterprise software developer.

Source: PricewaterhouseCoopers/Thomson Venture Economics/National Venture Capital Association MoneyTree Survey; and original research.

Email: daniel.primack@thomson.com