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Cambridge's Flagship Ventures announces new $270 million fund focused on healthcare and sustainability

Posted by Scott Kirsner  January 11, 2012 08:00 AM

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Conventional wisdom says that investors are fleeing biotech and cleantech. So it's surprising to hear that Cambridge-based Flagship Ventures has raised its biggest fund so far — $270 million — explicitly to invest in those two sectors, where companies can require large amounts of capital and long gestation periods.

Flagship managing partner Noubar Afeyan told me last night, "I think the remaining limited partners who want to be in venture capital" — the pension funds, wealthy individuals, and university endowments that give VCs money to manage — "are looking for differentiated strategies, and they're looking for track records."

Two Flagship-backed companies went public in 2010 and 2011: AVEO Pharmaceuticals and BG Medicine. Big acquisitions from past Flagship funds included Accuri Cytometers (acquired by Bechton Dickinson for north of $200 million last year) and Adnexus Therapeutics (acquired by Bristol-Myers Squibb for $430 million back in 2007.)

"For 11 years, we've operated as though it's a tough capital environment," Afeyan says. "Fortunately or unfortunately, we've been more right than wrong. We haven't adjusted our model of de-risking things before we pour a lot of money in. It's just a discipline that serves early-stage ideas well."

In addition to the typical early-stage investing that Flagship has done in the past, a portion of this new fund will be dedicated to later-stage investments. "In some cases, it can take longer for a company to get the product ready, or the investment syndicate may not be willing to continue, and there's a moment in time to join in where the value proposition for investors can be much higher," Afeyan says. "We see an opportunity to get in, it has been de-risked, and we're not paying a premium to get in. We're not talking about restarts and recapitalizations. We're talking about where there's an opportunity to capture value over a shorter period of time. Those are the investments that allow a fund to return value earlier in the life of the fund. The reasonable complaint that limited partners have had in the early-stage VC world has been, 'I'm getting nothing for four or five years.' They may not need huge returns, but they'd like something. You're trying to create a balance in terms of timing."

Flagship has six investors on staff that focus on finding worthy investments, and eight people focused on internal company-creation projects as part of Flagship VentureLabs, which has cultivated start-ups like Seventh Sense Biosystems.

As for venture capitalists fleeing from the energy industry, Afeyan says, "I don't think the level of activity has gone down. I think that the level of noise has gone down. There was a time in cleantech when people were just spraying money around indiscriminately. What we've seen is that cleantech has turned out to be more like biotech. You need patient, flexible execution to generate reasonable companies."

Flagship had raised its prior fund in 2007; that one totaled $235 million, and was invested in 24 companies including Joule Unlimited, Agios, and Selecta Biosciences, a start-up developing an anti-smoking vaccine that I covered last year in my Globe column.

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Scott Kirsner was part of the team that launched Boston.com in 1995, and has been writing a column for the Globe since 2000. His work has also appeared in Wired, Fast Company, The New York Times, BusinessWeek, Newsweek, and Variety. Scott is also the author of the books "Fans, Friends & Followers" and "Inventing the Movies," was the editor of "The Convergence Guide: Life Sciences in New England," and was a contributor to "The Good City: Writers Explore 21st Century Boston." Scott also helps organize several local events on entrepreneurship, including the Nantucket Conference and Future Forward. Here's some background on how Scott decides what to cover, and how to pitch him a story idea.

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