Last of the Mohicans

European early-stage venture funds have not been the easiest sell in recent years. Limited partners, having gorged on mega-buyout returns during the boom years, have found it hard to be persuaded by the slower, less consistent returns from European venture.

“Venture capital altogether has been in a less than easy situation over the last few years, for the simple reason that cash has not been forthcoming,” says Antoine Papiernik, managing partner at European venture firm Sofinnova Partners. “Meanwhile the buyout guys were pouring cash back to investors and we were looking pretty foolish.”

A big home run was needed to remind the investor community that European early-stage is still alive and kicking. In February, Sofinnova delivered it. The Paris-based firm achieved the largest exit in its 35-year history with the $700 million-plus trade sale of medical device company CoreValve.

CoreValve produces the ReValving System, which provides a minimally invasive alternative to open-heart surgery. Patients who would otherwise be considered too high risk for the procedure can now have their aortic valves replaced.

People called us fools and told us we were the ‘last of the Mohicans’ doing early-stage investment

Antoine Papiernik

The sale to New York-listed medical device giant Medtronic will net $700 million plus additional milestone payments for the vendors in what Sofinnova describes as one of the largest trade sales of a private, venture-backed medical device company in history. The deal is expected to return the firm in excess of 10 times its original investment.

Sofinnova was the sole investor in CoreValve's €4.5 million Series A fundraising. It was then the largest investor in the €20 million Series B round, when it was joined by Apax France and specialist life sciences investor HealthCap. It also participated in the final $33 million Series C round with US firm Maverick Ventures.

Sofinnova resisted the temptation to cash out at the beginning of 2008, when it received a couple of unsolicited offers to buy the company. “The numbers were nice,” says Papiernik, “but we saw a life developing the product further ourselves.” The firm's LPs were slightly less enthusiastic about the holding strategy. “When we told our investors we had had offers and said no, they said ‘you guys are crazy’. We had a lot of difficult conversations with investors for the following year. Now we look a bit more intelligent,” says Papiernik.

The investment and exit represent “venture capital 101” for Papiernik, who, apart from the financial rewards, sees it as the exemplar for how venture capital should work. “To me, aside from the financial performance, this makes a nice case study for our investors. Come in early in the A round, take a large initial stake and take a huge risk, but with a vision of how to solve the risk return. Put your money where your mouth is,” he says.

Ultimately for Papiernik, the exit represents a long-awaited vindication of the early-stage venture capital model. “It's been hard,” he says. “People called us fools and told us we were the ‘last of the Mohicans’ doing early-stage investment.” By showing investors that it can still produce stellar investments, Sofinnova may well have won fresh respect for the beleaguered European early-stage venture capital tribe.