Tullis-Dickerson Wraps Second Fund –

GREENWICH, Conn. – Following the increasingly popular strategy of launching satellite offices in emerging cradles of entrepreneurship, Tullis-Dickerson & Co. Inc. in June opened its third regional office in Michigan and closed its second health care and health-related venture fund.

The $195 million Tullis-Dickerson Capital Focus II will feed three satellite funds in Alabama, New Mexico and Michigan that will concentrate on identifying and funding the best seed deals in their respective regions, save some $75 million that will be used to back larger deals across the country.

A number of other venture firms have employed a similar strategy of opening offices in non-traditional VC areas to reach beyond the competitive deal flow in Silicon Valley. Redleaf Venture Management (story page 5), for example, recently opened an office in Western Pennsylvania and Draper Fisher Jurvetson (VCJ, February, page 14) has satellite offices in Virginia, Utah, Los Angeles and Alaska.

Tullis-Dickerson Capital Focus II will allocate $45 million to Birmingham, Ala.-based TD Javelin Capital Fund II and $37.5 million each to TD Origen Capital Fund, with offices in Santa Fe and Albuquerque, N.M., and TD Michigan in Ann Arbor. Lyle Hohnke, a partner of the firm stationed in Birmingham, oversees Javelin Fund, and Santa Fe-Based Vice President Mike Schafer manages the New Mexico offices. Tullis-Dickerson recently hired Thomas Collet, the former vice president of business development of Monsanto Co.’s Integrated Protein Technologies, to head the firm’s Ann Arbor office.

Tullis-Dickerson Founder and Chief Executive Jim Tullis believes his firm’s “hub-and-spoke” strategy is the only way to take advantage of the growing deal flow outside of the venture capital centers in Silicon Valley and Boston. “I believe that [VCs who] think they can get on an airplane and get into the local deal flow in a place like Albuquerque, New Mexico, they’re kidding themselves.”

The parent vehicle was raised from state and corporate pensions, major foundations, corporations, funds-of-funds, individuals and capital from the Small Business Administration’s Small Business Investment Company (SBIC) program. Mr. Tullis confirmed that the Michigan State Treasury, GE Capital and Chase Capital Partners were limited partners.

While it may seem logical that an investor like Michigan invested in Tullis-Dickerson because the firm’s new office there will promote in-state economic development, it was the firm’s investment strategy that held the most appeal to the pension.

“It wasn’t, Oh, gee. They’re going to open an SBIC in Michigan,'” said Joe Taylor, a former senior analyst who left Michigan Treasury in June 1998 to head up Munder Capital Management’s new private equity program (story page 8). “What they looked at was the large amount of research dollars spent [in Michigan].”

The firm had closed eight deals by press time, including Baltimore, Md.-based Internet health portal site Americasdoctor.com, prepackaged pharmaceutical vending machine distributor Supply Pro in San Diego and New Mexico-based Phase 1 Toxicology.