This is the third time Atlas has raised an opportunity fund. It last raised $300 million for one in 2021.
Opportunity funds are a bit of an investing weathervane. They mushroomed as the start-up industry flourished in the late 2010s and early 2020s. Over the years, Canaan, Flagship Pioneering, Lilly Asia Ventures, SV Health Investors, and Versant Ventures have raised these follow-on funds. (Just how well those funds performed financially is laid out in a special STAT report, “Ranking Biotech’s Top Venture Capital Firms.”)
These funds have fallen by the wayside over the last couple of years, though, as VC firms focus on appeasing their outside investors, many of whom are still waiting for a payout from their previous VC investments. In 2022, VC firms raised 120 opportunity funds, according to data from Pitchbook. That figure dropped to nine last year.
But there are signs of life in the life sciences sector: In addition to Atlas’ fund, VC OrbiMed recently raised $1.86 billion for an opportunity fund. Lightspeed Venture Partners, an international investment firm that invests in both health care and technology companies, also hopes to raise an opportunity fund, according to a filing with the Securities and Exchange Commission.
Some investors have critiqued opportunity funds as a sign of excess, or simply as a way for venture capitalists to fall into a sunk-cost fallacy when it comes to their investment portfolio, funneling more money to start-ups they’re already betting will succeed. “What VC wouldn’t love to support existing companies with other people’s money?” Steve Brotman, founder and managing partner at the investment firm Alpha Partners, previously told STAT. “But, even when a company hits a growth stage, it doesn’t mean you’ve got a punched ticket.”
Atlas has deliberately kept its early-stage investment funds small, particularly in comparison to the $1 billion-plus funds that some of its counterparts are raising. Last December, STAT reported exclusively that the firm raised $450 million for its 14th fund, which will go toward seed and Series A rounds for biotech companies just getting started.
The opportunity funds, Atlas partner Kevin Bitterman said, are an “elegant” way to address the tension between raising smaller funds that can provide investors with strong returns and having the money to support expensive drug trials.
“All of us at Atlas have lived in prior lives through funds that got to be, you know, a billion dollars or more. At that point, it becomes incredibly challenging to do early-stage seed investing and company creation,” he told STAT. “At the same time, drug development and biotech has not become a [less expensive] activity. So, to be able to support companies long term, the solution that we came to, rather than raising a single billion dollar fund, was to do this in separate vehicles, where we can tailor each of those vehicles’ strategy and expectations.”
Outside investors were quick to commit money to Atlas Venture Opportunity Fund III, which the firm started raising in late spring, he added.
Atlas can write checks for upward of $20 million to $25 million using the new fund. That money could go to either companies that are privately held or that are publicly traded.
Biotech stocks have been through the ringer in recent years, but are showing signs of recovery. The number of new companies joining their ranks through an IPO, though, has dropped off precipitously. Just a handful of companies have managed to go public this year.
So, does Bitterman think the worst is over? “I think so. The optimist in me will say there’s a bunch of green shoots out there to point to,” he said. He cited the case of Sionna Therapeutics, in which Atlas was an early investor. Sionna’s share price has risen around 36 percent since its February IPO. “So, [I’m] optimistic that the IPO market will come back and hopefully come back strong.”
