Skyline Ventures

hen evaluating companies, we look extensively at the science, clinical data, management team and market for the company's proposed products. Our areas of expertise include small molecule and protein therapeutics; medical devices; diagnostics; and technologies that facilitate drug discovery and life science research.

For Skyline V, our latest fund, with $350 million in committed capital, we are targeting 15-18 portfolio companies. We anticipate investing $15-25 million per company over a number investment rounds per company. Most often, our first investment in a company will be in the range of $10-15 million, depending on how many follow-on rounds we forecast for that company before an IPO or sale.

Historically, a majority of our portfolio companies have been in the San Francisco Bay Area. However, we have also made investments throughout the United States, including the traditional investment centers of Boston and San Diego, as well as Denver, the Midwest, and Florida.

Generally, we think of companies as being in one of three categories:
Breakthrough Medicines in or Near Human Clinical Trials
Medical Devices
Startups with Great Teams plus Proprietary Science or Engineering

Many of our investments have been to finance companies developing breakthrough medicines that were in or nearing clinical trials when we first invested. The rounds we invest in are usually structured so that the company can achieve an important value creating and financeable milestone, such as a Phase 2 efficacy study, before it has to raise its next investment round.

We work hard to understand the molecular mechanism of the drug candidate, the ratio between toxicity and therapeutic effect in animal pharmacology, and to evaluate the medical condition at which the drug is aimed. We seek to anticipate what the FDA's attitude toward the drug candidate will be, whether doctors are likely to prescribe it, and to assess its commercial potential.

Finding drugs that can make it all the way through clinical trials and FDA approval is a difficult, long and risky proposition. At Skyline, we generally seek drug candidates which we believe have a higher chance than normal of having the human clinical data duplicate the pre-clinical animal data. Only if the drug is successful in clinical trials will it eventually make it onto the market. And, only if the drug eventually makes it to market will the investment become the type of important, "signature" company we are most interested in backing.

For medical devices, we generally invest in companies which in our judgment have completed "proof of principle" for the key products. The human pathophysiology must be well understood, and we must believe that the animal models will predict the behavior of the device in humans. Generally, this means that if the engineers design the products substantially as specified, there is reasonable assurance that they will work clinically to solve the problem for which they were designed. While the engineering required to complete the key products might have to be extremely elegant-and it often is when we make an investment-there should not need to be fundamental breakthroughs required. In other words, we seek to fund product development, not research. From a clinical perspective, we must be convinced that the product as specified represents a significant therapeutic improvement for the patient, not an incremental one, compared with therapies already on the market or under development

Not every company has a product with proof of principle, or a prototype, when we make our first investment in it. Some companies have unique intangibles that create our belief that the company is destined to succeed. When we have made these investments in the past, the most important of these intangibles have included:

The people involved when we invested included the established leaders and innovators in the field.

The company had proprietary science or engineering, or a scientific approach that we believed could produce breakthrough products.

The company was planning to tackle a new field, with large, important markets if the company became successful.
As a result of these intangibles, these startups have the potential of being clear market leaders. Several of our most successful investments began in this category.

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