River Cities pumped $5 million into Orange, Conn.-based medical device maker SurgiQuest Inc. River Cities led the second round of investments in SurgiQuest totaling $20 million, said Carter McNabb, a River Cities managing director who handles health care deals for the firm.
This is just River Cities' second new investment of the year. It has also made a handful of follow-on investments by pumping more money into companies in which it had already invested, McNabb said.
SurgiQuest makes devices that give surgeons access to the abdominal cavity for laparoscopic surgeries. Those surgeries, which are minimally invasive, involve incisions in the abdomen that then allow surgeons to perform a variety of procedures, such as hysterectomies, gall bladder surgeries and most robotic surgeries.
McNabb followed SurgiQuest for a while. It grew to the point that the chief risk to new investors had come down to simply execution of sales and marketing. SurgiQuest had already made a push to sell at a major laparoscopy hospital in Atlanta. It quickly took the majority of market share there.
"We saw that, if they were going to be able to do that everywhere, then this is a very interesting opportunity," McNabb said.
River Cities is taking an active role in SurgiQuest. Along with its investment, it gained a seat on the company's board.
McNabb doesn't expect SurgiQuest to need more financing. This round will allow it to expand sales efforts nationally. After that, River Cities will likely exit the investment, he said. That usually means the company gets sold or goes public.
The deal reflects an increase in venture capital investments for River Cities. Several more could be on tap. The company, which has raised about $400 million through four funds since 1994, is investing from the $120 million fund it raised in 2007. McNabb figures it can make three or four new investments, plus adding on to prior investments.
"We have dry powder now and we're actively seeking new investments," he said.
But he also expects River Cities to begin raising another new fund next year to replenish its capital.
That doesn't surprise Jim Cunningham. He's executive director of C-Cap, which manages operations for Cincinnati-based angel capital group Queen City Angels.
"They're definitely on the uptick in terms of activity and results. They've survived the recession better than most," Cunningham said, referring to national firms and other local venture capital companies.
River Cities has built specialties in health care and in software that is typically accessed via the Internet. It has stuck to investing in companies built for the long run, Cunningham said. It won't go for the big hit by investing in fads.
"That's enabled them to consistently invest in both good times and bad," he said.
Still, things have picked up for River Cities. After making no new investments in 2009 and the first half of last year, new deals have picked up.
"Current deal flow is probably stronger than it has ever been in our history," River Cities Managing Director Dan Fleming said.
Nationally, the number of venture capital investments this year is on pace to rise 3 percent from a year ago. But they're still 13 percent shy of 2008 levels, according to the National Venture Capital Association.
Copyright 2011 Steve Watkins / Cincinnati Business Courier