LOCAL LIFE SCIENCES GET A LIFT
Quark fund’s arrival raises eyebrows
The sudden emergence of a $656-million Vancouver technology fund with heavy ties to Chinese investors has raised eyebrows in the Canadian venture capital scene, but officials say it could also be a potential game-changer for local health sciences.
On Monday, venture capital firm Quark Venture said it is setting up the fund — the “Global Health Sciences Venture Fund”, valued at US$500 million — to target “cutting-edge discoveries” in the life sciences industry, such as the development of new therapies, treatments and medical devices.
Quark is partnering with GF Securities, a China-based investment institution that handles up to 40 per cent of life-science sector IPOs in the Chinese market.
Quark CEO Karimah Es Sabar, who joined the company last month after an eight-year stint as the president and CEO of the Centre for Drug Research and Development at UBC, said the goal is to create a lifesciences cluster in Vancouver based around local technical expertise.
“Companies go to where the money is,” Es Sabar said, noting the fund should draw other investments in the sector. “In the United States, roughly 40 per cent of the sector operates in Boston. Guess where most of the venture funds are? I’m hoping we can create another Boston.”
It is unclear where the funding — the first phase of $131 million is already in place — is coming from. In a Facebook post on Oct. 11, B.C. MLA Ralph Sultan said the fund is backed by “$1 billion managed from Sichuan province” in southwestern China. Sultan added during an interview that he understands the decision-making for the fund will be in Vancouver.
“It is my impression that the funding is held in reserve by the Sichuan government,” he said. “It has been earmarked. … The Chinese are smart enough to know they cannot mastermind the fund from China, and they need decision-making on the ground here in North America. And I think that’s a big vote of confidence in the industry expertise here in Vancouver.”
Es Sabar said, however, that the fund’s investors are almost entirely institutional — large, publicly traded companies, investment banks and financial institutions. Es Sabar added that, like other venture funds, the general public will not be able to invest in the Quark fund, guaranteeing that the capital is stable and business-savvy.
“We don’t have Chinese government money,” she said, adding that while it is possible for government agencies to invest through other funds and stakes in other corporations, “that’s possible in any coun- try. … The focus is to get the best smart money that we can.
“Most, many of them are from China, but some are from the United States and all over. … We don’t want just any capital, but institutional investors who themselves have been successful and have built successful properties.”
According to the Canadian Venture Capital and Private Equity Association, there has been $1.8 billion invested in life sciences through venture funds from 2013 through the first six months of this year. Of that, $487 million has been in Vancouver.
Darrell Pinto, research director at the association, said the amount of money committed to the Quark fund is much larger than the usual venture fund in the Canadian lifesciences sector, and having a significant amount of the capital coming from China is also unusual.
“I would say double the size (of a typical fund),” Pinto said, adding that it typically takes at least a year of courting investors for a venture fund to reach its target. “I am not aware of any similar life science funds of this size in Canada.”
He said the true test for the fund will be whether it can support companies beyond the early development stages, since more than 55 per cent of venture funding in Canada is geared toward “early stage” development, three times the amount dedicated to later-stage funding.
“Although that is a good start, any venture fund’s returns will only be realized over a much longer time frame, so only time will tell if Quark Venture will succeed,” Pinto said. “If they do, then I think their suc- cess will definitely attract other foreign investors to Canada in the same way.”
One of Quark’s two founding partners, Franklin Jiang, is reported in Chinese media as one of 18 “special investment promotion consultants” named by Sichuan province’s Investment Promotions Agency in 2011. He facilitated a partnership between the UBC Centre for Blood Research and a Chinese biotech firm in June 2013. The other partner is Jesson Chen.
A key take-away from these relationships, Es Sabar said, is that the companies that Quark targets will have easier access to the Chinese market if they are interested.
“Because of the business relationships we have, we will help them find the right partner there,” she said, adding that the deal will also force Vancouver’s biotech companies to compete with global players.
“This is a global fund, not a Vancouver one. So Vancouver companies have to compete with the best of the best,” Es Sabar said. “But we know that Canadian science and discovery is excellent, so we will do well from this. This steps up the game for everybody.”
We don’t want just any capital, but institutional investors who ... have built successful properties.