Sofinnova holds EUR 150m close for third biotech fund

Sofinnova Industrial Biotech I held a final close in March 2018 on EUR 125m, surpassing its EUR 120m target. The fund made 10 investments, the last of was were made in March 2020.

Sofinnova expected to raise at least EUR 125m to equal its previous fund in the strategy. Having exceeded this target, the fund could raise more at its final close.

"We started to think of launching a new fund around the time when Covid struck, when many people including us were in limbo and didn't know which way the world would go," Sofinnova Industrial Biotech partner Joško Bobanović told Unquote. "For a while we sat out and waited to see what would happen – but when we realised that this would go on for a while, we launched the fund in early summer 2020 and held a formal first closing around Christmas 2020."

Much of the fundraise was completed virtually. "It's a little paradoxical as our world is a world of relationships with our LPs and co-investors, but the efficiency of video meetings was an advantage," Bobanović said. "Virtually we could do five meetings in one day with all corners of the world, which was an advantage to get the process going. There were some situations where we could travel, but we still had a significant number of investors that we had never met."

Given the development of the industrial biotechnology market and the speed at which these companies are currently growing, Sofinnova could raise its next fund more quickly than anticipated, Bobanović told Unquote. "Our typical portfolio construction period is three to four years. We are seeing healthy dealflow and are asking ourselves if we might deploy the money faster with the companies we end up investing in. We are seeing a sector with great ideas and interesting startups, so we might have to revisit some of our premises on how long this will take."

Although Sofinnova has managed an impact-focused strategy for the past 10 years, the firm has formalised its strategy by making its latest fund an Article 9 fund, Bobanović told Unquote.

In addition to Bobanović, Sofinnova's Paris-headquartered Industrial Biotech team includes fellow partners Denis Lucquin and Michael Krel. The team also comprises managing partner and COO Monique Saulnier, principal Guillaume Baxter and analyst Anouck Champsaur.

The interim close announcement comes shortly after Sofinnova held a final close for Sofinnova X, its latest healthcare-focused venture fund, as reported. The firm also held a final close in March 2021 for Sofinnova Crossover I, which focuses on later-stage opportunities.

Investors
The fund is backed by sovereign wealth funds, financial institutions and corporate investors, as well as new impact-focused LPs. The majority of the LP base is made up of European investors, with some LPs from North America. The fund also has some new investors from Asia, Bobanović told Unquote, who will provide exposure to and knowledge of the region for the expansion of the fund's portfolio.

LPs in the predecessor fund in the strategy include BPI France, the European Investment Fund and Novo Holdings, according to Unquote Data.

Investments
Sofinnova Industrial Biotech II will continue its predecessor's strategy to target biotechnology companies involved in the development of sustainability in the food, agriculture, chemicals and materials sectors. It is expected to make 10-12 investments and has made two so far.

The vehicle will make initial investments of EUR 1m-5m, with an average ticket of EUR 13m-17m incorporating follow-on investment over the investment lifetime. The fund will invest two thirds of its capital in Europe and one third in North America.

The portfolio of Sofinnova Industrial Biotech I has seen two IPOs: Belgium-headquartered biotechnology-based crop protection business Biotalys, which listed in July 2021; and France-based Afyren – a producer of substitutes for petroleum-based chemicals used in animal feed and food – which listed in October 2021.

While the firm's ESG policy is separate from the impact strategy of its fund, both elements contribute to the fund's emphasis on sustainability. "On the environmental impact side, we follow a set of objectives for every company that we define with entrepreneurs and track over time," Bobanović said. "These contribute to the environmental impact significantly, as well as the business plan. We don't force additional reporting work or work that would stop the startup from following their path and executing their growth plan."

When it comes to ESG, Sofinnova focuses on board level governance, with an emphasis on diversity. "One of the key elements of every Sofinnova strategy across the board is an emphasis on very strong governance from day one," Bobanović said. "We always participate in the board and promote a high level of standards. It's about participation, not control, and we push for independent board members. Board diversity is equally important – not just gender diversity but diversity of nationalities, experience and geographies, which brings a richer discussion.

"When it comes to social elements, we look at whether something will have negative social consequences – for example, making people lose their jobs. For environment, aside from our environmental impact key performance indicators, we follow standard classical environmental elements."

The Industrial Biotech team integrates its portfolio company targets/sub-targets with specified UN Sustainable Development Goals, namely goals 2 (zero hunger), 9 (industry, innovation and infrastructure), 12 (responsible consumption and production), and 13 (climate action).

Bobanović noted that it is more challenging to measure CO2 emissions of early-stage companies, but the firm still monitors and develops this over time. "We want to look at the CO2 footprint of our companies, but it is difficult at early stages – you need to know what you are producing, how you are producing it, and where. It can be very complex." However, the process becomes simpler once these companies grow, he added. "Once the company matures – as was the case with Afyren, for example – we know where its factory will be and so on, so we can calculate this. Most external advisers are used to late-stage operating companies, where it is easier to calculate environmental footprint, so we do this in-house."

People
Sofinnova Partners – Joško Bobanović, Denis Lucquin, Michael Krel (partners); Monique Saulnier (managing partner, chief operating officer); Guillaume Baxter (principal); Anouck Champsaur (analyst).

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