Minneapolis-based Upwind Medical Partners is launching a $6 million to $8 million early-stage fund that will focus on commercializing IP from health care and research institutions such as the University of Minnesota (UMN), Wisconsin Alumni Research Fund (WARF), Allina Hospitals & Clinics, and Johns Hopkins Hospital. Founded by Jim O’Reilly, a former health care executive, software entrepreneur, and VC exec, Upwind hopes to create up to three companies a year and exit them in no more than four years. The goal is to create enough returns in a condensed time frame by focusing on IP with a clear path to market, and pouring some of the exit dollars back into the fund while also keeping investors happy, according to O’Reilly.<\/p>\n
Minnesota, traditionally a land of scarce early-stage capital, has seen a burst of recent activity. Affinity Capital Management in Minneapolis is partnering with Triathlon Medical Ventures in Cincinnati to create a $10 million seed\/early-stage fund. Coordinate Capital LLC, backed by veteran biotech investor Steven Burrill, is trying to raise $25 million partly to finance start-ups that will incubate at the planned Elk Run BioBusiness Center outside Pine Island, and UMN is collaborating with private real estate developers to launch a $20 million fund to back new companies housed at a planned accelerator adjacent to the school’s Biomedical Discovery District. In addition, Twin Cities Angels recently raised an estimated $50 million for its second fund, and the Minnesota legislature is close to passing a $40 million, four-year angel investment tax credit.<\/p>\n
The activity couldn’t come at a better time. A weak economy and tougher regulatory requirements have scared away investors, leaving some of Minnesota’s most promising medical start-ups to cut back or wither away. Since December, Transoma Medical, Leptos Biomedical, and Disc Dynamics have shut down. Plymouth-based Lumen Biomedical, Inc., sold one of its two clot-removing devices to boost its balance sheet, and VitalMedix, Inc., a drug company spun out of UMN, has filed for Chapter 7 bankruptcy. The dearth of early stage money is especially acute at academic research institutions that have great IP but lack financial resources to commercialize the technology. “Every tech transfer office has gotten more aggressive,” O’Reilly says. “They haven’t had the success they had in the past.”<\/p>\n
Upwind plans to create companies based on near market-ready IP that can deliver liquidity in a relatively short period of time through a sale or licensing. While VC firms typically fund one or two potential blockbusters over several years, Upwind will generate modest returns from developing many less ambitious companies in a lot less time. “We’re looking for lots of singles and doubles, not necessarily home runs,” O’Reilly says. Upwind’s limited partners will own 70% of the fund and also will receive a pro-rated percentage of each company in the portfolio. For example, a $1 million investment in a $7 million Upwind fund earns an investor a 10% equity stake in the fund and 10% in each of the two or three start-ups it launches every year.<\/p>\n