RiverVest Targets $60 Million First Fund –

ST. LOUIS – RiverVest Venture Partners is hoping to hold a second close on its freshman fund, the $60 million-targeted RiverVest Venture Fund I, during the first quarter of this year, said Thomas Melzer, a managing director at the firm. RiverVest held an initial close on $28.5 million in mid-September 2000, he added. Melzer said he was not sure if the vehicle’s second close would be a final one, or if the vehicle would hold one additional close to meet its targeted amount.

RiverVest was founded in March 2000 by Melzer, former president and chief executive officer of the Federal Reserve Bank of St. Louis, Mark Mendel, formerly a vice president at ARCH Venture Partners, Jay Schmelter, previously a principal at Crescendo Ventures and Andrew Craig, a former chairman and chief executive officer of Boatmen’s Bancshares a bank holding company acquired by Nationsbank Corp. The firm will focus on early-stage health-care technology companies in industry sectors like medical devices, biotech, specialty pharmaceuticals and drug development tools, Melzer said. The firm does not have any preset guidelines as to how it will allocate capital between its various investment areas, he added.

The fund will back approximately 10 to 12 companies with initial investments between $1 million to $2 million, he said. Follow-on investing could push deals as high as $5 million to $6 million, he added, noting RiverVest will only do follow-on investments as long as its portfolio companies are progressing in their development.

The firm will invest the vehicle nationwide with a focus on the central Midwest, Melzer said. This focus is a result of the firm’s location in St. Louis and its proximity to Washington University’s School of Medicine. “We have in our own backyard a ton of intellectual capital devoted to health care,” he added, noting the medical school was ranked fifth nationally in terms of research grants.

Melzer said he would describe RiverVest’s fund-raising process as difficult because of its status as a first time fund. “Many institutions just will not consider investing in a first time fund, because you do not have a track record,” he said. RiverVest has been attempting to surmount this obstacle by stressing the diverse backgrounds of its four founders and managing directors, he noted. “All the critical pieces are there in terms of industry operating experience and venture capital experience,” he said, noting “so there is plenty about us to sell.”

The fund’s first close was comprised mostly of high-net-worth individuals, Melzer said. The firm’s investor base currently includes the McDonnell Family and Bank of America Corp. Melzer declined to identify any potential LPs.

RiverVest and its managing directors put up more than $2 million of the fund’s total capital, Melzer said. The fund has an 80%/20% carried interest structure and a 2.5% management fee, which begins to decline in year six by 20 basis points a year to 1.5%. The vehicle has done two investments to date for a total of $3.5 million. Melzer said he thinks the fund should be fully invested over approximately a three-year period.

Alistair Christopher can be contacted at