With its first-ever venture debt fund, Pontifax is aiming to offer a minimally dilutive funding option to public and private companies in its sweet spot, while giving the firm a chance to invest in crossover rounds when valuations are outside of the range of its equity fund.
Closed in April, the $150 million venture debt fund has made one investment thus far, with another soon to be announced, Pontifax’s Iyona Rajkomar told BioCentury. An undisclosed large U.S. institutional investor was a cornerstone LP in the fund, which also has a group of undisclosed Israeli LPs.
Rajkomar said in a typical case, the new venture debt fund will aim to invest at least $10 million, and possibly more than $20 million, at a time. It will seek to obtain traditional venture debt plus convertible notes that can become an equity stake at a later date.
“Most of the returns will be driven by the equity upside from conversion of the loan notes.”
Pontifax will target companies in the U.S., Europe and its home country of Israel with the venture debt fund. Rajkomar said the fund will invest in private crossover rounds when valuations are "outside our comfort range" for the equity fund. It will also invest in companies it believes are undervalued that are trading on NASDAQ, Euronext or the London Stock Exchange, and that are seeking dual listings or re-listings.
“Most of the returns will be driven by the equity upside from conversion of the loan notes,” and the process can reduce a company's financial liability, said Rajkomar.
As mezzanine rounds have grown larger, some private companies’ valuations have grown out of reach for Pontifax’s $250 million equity fund, which closed in April 2018. That vehicle is 15-year-old Pontifax's fifth venture fund.
While the equity fund focuses on therapeutics opportunities, the venture debt fund will be open to a wider swath of areas, including medical devices and digital health.
Indeed, the debt fund’s first investment was in cardiac device maker Vascular Graft Solutions Ltd. (Tel Aviv, Israel). Its next investment will be in a therapeutics company, Rajkomar said.
In Europe, VGS markets vein scaffolds used in cardiac and peripheral bypass surgeries. It is conducting a pivotal study upon which it hopes to base U.S. approval.
The firm has made 10 investments thus far from the 2018-vintage equity fund. Rajkomar said Pontifax is likely to make about 18 deals across roughly three years from that fund.
Rajkomar said Pontifax is collaborating on the fund with Medison Pharma Ltd. (Petah Tikva, Israel), which commercializes drugs in Israel and Eastern Europe and operates its own venture fund; she declined to provide specific details on Pontifax's relationship with Medison.