Joe Cunningham of Sante Ventures talks about how they started their new fund and what he sees in the life science market today.
What is your background?
I’m a physician by background and I’m still on the board of trustees of the Texas Medical Association. I did serial entrepreneur work and then received an MBA from Baylor. After that I went on to work as the chief medical officer of Providence Health System which is part of the Ascension health system. Ascension is the largest non-profit medical system in the country with $14B in revenue. Austin-based Seton is one of the bigger hospitals in that system. The CEO of Ascension, Doug French, recognized the difficulty of bringing innovation into the big health system so he started a $125 million corporate venture fund and he asked me to help him run it. The fund was a financial success.
How did Sante Ventures start?
Along the way we ran into Austin Ventures in a deal we seeded together called Spinal Restoration here in Austin. Our partner Kevin Lalande was building a healthcare investment practice at Austin Ventures, and asked Doug and me to join as Venture Partners to help drive that effort. Over the next four years, we built a successful portfolio with AV and ultimately decided together with AV that Texas and the Central US could support a dedicated early-stage healthcare venture firm. We spun out of AV and raised our own fund. They were very collaborative and supportive in that effort – the two firms maintain close working relationships and, in fact, we still share office space with them.
What is the relationship with AV today?
They are a limited partner in the fund and a close co-investor.
How big is the fund in total?
$130 million. We also have some outside investors in the fund, many of them from Nashville with the healthcare system capital of the world. We set out to raise $100M and were oversubscribed but the fund documents cut us off at $130M.
Who works on the fund?
The three general partners, an associate, Omar Khalil who has a Masters in biomedical engineering and our CFO, Brad Wolfe.
What do you look for in an investment deal?
We do early stage seed through Series B investments in capital efficient medical technology, healthcare services and healthcare ID companies. We have a preference for companies located in Texas or the Central US although we will consider the either coast for select opportunities.
CTAN sees medical device deals. We recently looked at Class One Orthodontics and previously looked at ConMediSys. Did you see those deals?
We did. We see many interesting companies that for one reason or another don’t end up a fit for our portfolio. We will make only 15-20 investments out of this fund, so as you can imagine, we will by design be in only a subset of the interesting companies in our space.
Do you require FDA clearance on your deals?
Most of the time our deals are not FDA-cleared at the time we invest. In many cases, FDA approval is required by law prior to selling the product in the US, and the expense of the necessary clinical trials is a big driver of the company’s need for our investment dollars.
How do you vet the deals?
We have a deep network of clinical, regulatory and market advisors who we tap to help diligence deals.