PE takeout frees up LSP's team, promises bigger funds
Europe's largest life sciences VC is set to get even bigger. On the back of raising nearly $1 billion for its seventh fund, LSP is being acquired by private equity firm EQT, setting up the VC to raise even larger funds in the future and freeingup partners to focus on their deals and portfolio companies.
Last week, LSP announced the first close of LSP 7 at €850 million ($982.9 million), making it the largest European life sciences VC fund to date. It's the second consecutive LSP vehicle to hold that mantle, after LSP 6 closed in 2020 at €550 million.
The expectation is that the firm's future funds will be even bigger after EQT AB (SSE:EQT) agreed to acquire it for €450 million. EQT will pay 25% of the price in cash and the remainder in stock, with the potential for an additional €25 million in payouts. LSP will be rebranded as EQT Life Sciences.
According to LSP managing partner René Kuijten, the deal allows LSP to remain an independent unit under the EQT umbrella, affording the team leeway to concentrate on deal flow and portfolio companies while EQT handles fund-raising and compliance on behalf of LSP's funds.
"This is really a match made in heaven," Kuijten said. "It really is a win-win."
Joining EQT means LSP will have access to larger LPs, equating to bigger funds and bigger stakes in its portfolio companies, while freeing up the team to focus on the science.
Kuijten said the LSP team started having conversations about a year ago on what direction the firm should take, with back office functions around compliance regulations and fund-raising activities eatin up more and more of the 34-person teams's time. The firm has raised over €3 billion in funds over its 33-year history.
"The question for us was whether we want to continue to grow it even further and specialize also in fund-raising," he told BioCentury. "If we want to make that step, then we need to really invest in a fund-raising engine. And the question was whether that's our core, whether that's something we do well. We like to spend our time doing deal-making and with our companies."
The acquisition by Blackstone Inc. (NYSE:BX) of Clarus Ventures was also a trigger for the firm to start thinking about something similar, Kuijten said, although Blackstone Life Sciences has a different investment strategy with a focus on larger pharma spinouts and product financing deals.
LSP thus started talking to larger financial institutions but did not approach EQT directly. Rather, Kuijten said EQT came to LSP over the summer with an initial proposal for a partnership to help EQT assess the scientific risk within its healthcare deal flow.
EQT has €70 billion in assets under management with over €44 billion in active funds across buyouts, real estate, infrastructure and venture. Healthcare is EQT's third-largest sector, accounting for about 16% of its allocations, but nearly all of its deals fall outside biotech. In the past five years, EQT has made 20 healthcare investments worth an enterprise value of €65 billion.
What LSP gains is a dedicated 80-person team at EQT that focuses solely on fund-raising, bringing in on average about €20 billion in capital commitments per year.
"We believe that on EQT's platform, obviously with a much bigger name and reach in the industry, our own reach will increase," he said. "We'll probably see more high-quality deals and we can increase our exit capabilities because relationships with banks will improve."
Kuijten said LSP's existing funds - LSP 7, LSP Health Economics Fund 2, LSP Dementia and the LSP public equity fund - all remain the same, with nothing changing for existing LP's. And neither will the investment strategy of the funds change.
What will change is the furture mix of LP's, as Kuijten said future funds will likely include both existing LSP investors plus EQT investors. That could give the firm much larger funds to deploy along the same investment strategy with a focus on European life sciences.
The ticket size of each investment could grow, and the firm could be able to follow companies further than before.
Kuijten saiid LSP would previously have led a series A round and taken about 25% of the deal, but likely not participated in crossover rounds or IPOs due to their deal size. Now LSP is positioned to take 50% or 75% of the round and syndicate with fewer investors, while being able to provide follow-on capital through the IPO.
"I think with EQT, LSP 8 can become even larger," he said.
Despite the growing size of LSP's funds, Kuijten doesn't expect a mandate to expand to other geographies.
"Our stronghold is really in Europe," he said. "It's a market where there's so much opportunity still for us, more actually than in the U.S. because there's so many other VCs in the U.S. and the competition for deals is so much larger."
While the firm will continue to participate in their opportunistic deals outside of Europe, 80% of the deals are expected to still come from the EU, at least in the mid-term.
"There's so much opportunity here. Indeed, we can back companies more, even after an IPO for example. But this market has much more opportunity at the moment for us than the U.S. does," Kuijten said.
LSP's biggest fund to date
LSP isn't done with its latest fund, as Kuijten said he expects LSP 7 to close with at least €1 billion, flying past its initial target of €750 million in just seven months.
The fund will invest in 15 - 20 companies with a focus primarily on European biotech.
LPs included pension funds, insurance companies, wealth managers, government funds such as the European Investment Fund (EIF), and family offices, along with multiple undisclosed pharma companies.
The firm has already made three investments out of the new fund. LSP co-lead a €40 million series A round for French Treg play Egle Therapeutics S.A.S.; participated in the 83 million series A round for inflammatory company Evommune Inc.; and founded an undisclosed German company.