New Investment Firm Aims to Raise $15M for Startup Firms

Founders of a new venture capital firm in Kalamazoo, Mich., are working to raise $15 million for a fund to invest in startup companies that develop and commercialize medical devices.

Novus Biotech Ventures’ first fund, Novus Biotechnology Fund 1, primarily will focus on startups involved in medical imaging and cardiovascular devices with investments of $500,000 to $1 million per company across a series of rounds, Kevin McLeod, the firm’s general partner, told MiBiz, an online business news site serving western Michigan.

The venture firm has netted commitments of more than $1.5 million, McLeod said, adding he expects Novus Biotech Ventures to close fundraising efforts by the end of the first quarter in 2014. The fund’s first investment could come before year’s end.

Now in the “infancy” stage of fundraising, McLeod and his partners so far have found a receptive audience among prospective investors, he said. “The money is out there,” McLeod noted to MiBiz. “We  have people willing to listen to us. That has not been an issue. There are plenty of people willing to hear us out.”

McLeod, the managing director of the Michigan Medical Device Accelerator in Kalamazoo that works with startup companies, is one of three general partners that formed Novus Biotech Ventures. His partners include Greg Schultz, former executive director and CEO of the Borgess Heart Center for Excellence, and Frank Saltiel, an interventional cardiologist at Borgess Health.

Saltiel and Schultz approached McLeod seeking assistance in launching the fund, he said.

The three general partners hope to recruite roughly  30 to 40 limited partners as investors in the fund. The partners have retained Grand Rapids, Mich.-based The Charter Group to oversee the fund’s administration of the fund; McLeod and his team will focus on securing investors and working with companies in which the fund invests.

The Charter Group, whose principals created the Michigan Accelerator Fund I, a venture fund that invests in early-stage life science companies, will help raise funds and develop investment strategies, vet prospective financiers, conduct due diligence and craft deals.

Both the partners in Novus and The Charter Group will scout for deals. “We all have day jobs and we will continue with our day jobs. Our day jobs actually help make us smarter investors, but it doesn’t necessarily mean we’ll be better fund managers,” McLeod told MiBiz’s Mark Sanchez. “We want our day jobs to continue to fuel opportunity for investments and knowledge to help make investments, not just running a fund. Their day job is to manage funds and investments. Ours is to help operate medical device companies that actually take care of patients.”

The venture fund will initially target device startups in the Midwest and eventually fan out nationally through partnerships with investors on both coasts, McLeod said. The fund will not require startups to move to the Kalamazoo area, although it will encourage them to use companies in Michigan that can support their product development.

Through their professional and personal networks, McLeod said he and his partners can connect startups receiving an investment from Novus with local firms involved in the medical device industry, such as clinical testing or industrial design, “so the money we’re investing actually gets reinvested back into the state of Michigan.”

“Today, I’m doing the same types of things and introducing them to folks, but there’s no carrot. This gives us our carrot” to use Michigan vendors, he said. “It would be an encouragement, but there would be no strings attached necessarily to the investment.”
The partners formed the venture fund at a time when “there’s actually more demand here than any other time in this space” for early-stage capital. We know we can get and see a number of deals that are struggling at that early stage opportunity,” he said.

Novus Biotech Ventures is the 21st venture firm based in Michigan and the latest addition to the growing venture capital industry in the state, which in 2012 directed $242 million in investments to 33 companies, 13 of which were startups.

“Any new fund that establishes itself here, it really speaks to the industry in the state and only good things can come of that,” Carrie Jones, executive director of the Michigan Venture Capital Association explained to MiBiz. “It really speaks to what they’re seeing, and there’s a lot of innovation coming out of Michigan.”

Life sciences accounted for the largest slice of the $3.7 billion in venture capital under management in Michigan in 2012, and 28 percent of that amount went to companies involved in medical devices, according to an annual report from the MVCA.

Ultimately, the partners behind Novus Biotech Ventures hope to invest in seven to 10 companies over five years through their first fund. Their intent is to create larger, successor funds that can invest deeper in companies as they work their way through the product development and commercialization process.

“That would be the hope. Fund two is a little bigger, and then you look at Series A and Series B and take it from there,” McLeod said.