SAN FRANCISCO – Sofinnova Inc. at press time was preparing the launch of Sofinnova V as the firm’s fourth fund was nearing the end of its investment cycle. The new vehicle likely will target $150 million, more than twice the size of its predecessor, said Managing Director Mike Powell, who thought fund raising would begin in November.
The year-old Fund IV totaled $72.7 million, and by press time it had backed 21 companies and had about four or five investments remaining to round out its new deals.
Fund V will continue the firm’s strategy of primarily backing information technology companies but also life sciences enterprises, said Powell, who leads the firm’s life sciences investments.
Powell will manage the fund along with Managing Directors Alain Azan and Robert Carr, plus a yet to be hired fourth IT-focused partner. With a larger fund, the firm’s average individual investments will increase to about $5 million from $3 million. Powell said it was important that the firm also maintain its “credibility factor,” so the group did not raise too large a vehicle.
Some 80% of the new fund will be devoted to IT and the remainder to life sciences, excluding drug-discovery companies and those businesses that build their enterprises around providing a service to big pharmaceutical companies, Powell said.
Fund V’s management fee likely will be 2.2% and the carry will depend on returns. Sofinnova will get a 25% carry if the fund returns more than 25% net to investors. If that that does not happen, Sofinnova will get 20%.
As in the past, Sofinnova will continue to scout for deals abroad, sometimes co-investing with its French affiliate Sofinnova S.A., Powell said. He estimated about 15% to 20% of the new vehicle would be invested outside the United States.
Powell said he expected fund raising to be more enjoyable than the last time, his first fund-raising experience. While raising Fund IV, Sofinnova took newcomers Powell and Carr on the road to introduce the firm’s new investment team to investors. The untested team was particularly of concern to U.S. pension funds, but less so to European investors, Powell said.
Sofinnova III, a $31 million fund that closed in fall 1994, is posting net returns in the low 30s, Powell said. That figure is subject to the fluctuation of now-public holdings in portfolio companies Tumbleweed Communications Corp., an e-mail privacy company, and Phone.com Inc., a software provider that delivers Internet-based services to wireless telephones.