Venture Firm Seizing Upon Wide-Open Biotech Sector.

IN the 1970s' sci-fi flick "Fantastic Voyage," a team of scientists including the improbable Raquel Welch are miniaturized, along with a submarine. The mission: enter a VIP's body and perform vital surgery.

The story proved captivating to a young William Robbins, now managing director at West Los Angeles-based Convergent Ventures LLC, a biotech venture shop.

"To this day, I remember that film," says Robbins. "I later got a degree in neurology."

After taking his medical B.A. at Dartmouth, Robbins earned an MBA at Columbia University. Good thing. Now he helps direct the investment efforts of Convergent, including directing capital to MEMS ventures, which stands for micro-electromechanical systems. In general, MEMS are tiny devices that are inserted into patients' bodies, to take readings, release drugs, or even perform operations.

Robbins says that being in Los Angeles is advantageous.

"The world leaders in MEMS are found at Caltech, UCLA and JPL. You can't fly in here, drive around and hope to fund something. You have to be here, meet with people, meet them on the campuses or the hallways, and set up more meetings in short order. It makes sense for us to fund MEMS," he says, since other VC outfits are not well positioned to do so, either geographically, or by bent. Other promising areas are new pharmaceuticals and medical devices, says Robbins.

Convergent Ventures is raising $200 million for a bio-fund, trying to build on a five-year track record in biotech business development, and privately investing in biotech startups.

Biotech is not for most venture capitalists, says Robbins. From conception to payday is long and iffy, and copious amounts of bio-knowledge are necessary to invest smartly.

"Maybe you can finance a Web site without understanding the technical side of the Web," says Robbins. "But you find in biotech investing that you really have to understand the science."

Moreover, federal regulations covering new medicines and procedures are daunting obstacles, from a financial point of view.

"First you have in-vitro testing, and then in animals, and then in humans. That is the nature of science, you can't hurry it," says Robbins.

With that scenario, it is perhaps not surprising that even with a full-on boom in venture shops in Los Angeles in the past five years, there is still nearly a clear field for Convergent Ventures, says Robbins. Not only is biotech investing tricky, but startups only need "small" amounts of money, often $10 million or less, in the first round.

Many venture outfits today are huge, by historical standards.

"The venture shops now have hundreds of millions, and even billions at their disposal," Robbins says. "That has forced them to make more and larger investments. Those firms have really moved to later-stage deals. That has left something of a vacuum."

A small opening, says Robbins, is all Convergent needs.

Not Analogous

Ken Luskin, who runs the Malibu-based Intrinsic Asset Value Management money shop, last week acquired an 11.2 percent stake in Alameda-based TCSI Corp., provider of software to telecommunications giants.

Luskin, is an aggressive investor. He likes small-cap tech companies that have cratered on Wall Street to the point where their market capitalization is less than their cash in the bank, or other real assets. Then he looks for a "burn rate" that is well under control, or even for profits, and a solid business plan.

Criteria met, he often will take a large stake, often reportable (more than 5 percent) and he'll start talking seriously with management.

TCSI provides software that enables digital communications. As phone companies switch from analog to digital, demand for TCSI services and software could rapidly increase, although Luskin concedes it is a competitive market. Additionally, TCSI seems well connected to foreign telecom markets, such as China, and has a new board and management, including a CEO incentivized by stock options. TCSI stock as of last week was trading at under $2 a share.

"With $1.40 (per share of cash) in the bank, and debt, you are not paying much for the opportunity that this company could hit it big," reasoned Luskin.

Swiss Cheese Brokerage?

There are two versions floating around about the future of the former Donaldson, Lufkin & Jenrette shop in Century City, bought last year by Credit Suisse First Boston, the Swiss-based finance house. The DLJ plant was the productive bailiwick of Ken Moelis, who led 130 bankers at the peak.

As it stands, up to 30 bankers will leave with Moelis, when he officially joins brokerage UBS Warburg in March, including Warren Woo, veteran managing director. Making the loss especially painful for CSFB is that the departures are almost all senior bankers, say industry sources familiar with the situation. Said one insider: "Moelis is the uber-banker. When he leaves, the rest will follow."

Add that to the fact that the bulk of bankers at the old CSFB shop in town, which had 30 bankers under chief Mark Maron, have decamped to Lehman Bros.

"When it is all said and done, CSFB will be much smaller in Los Angeles," said the insider.

When asked for comment, CSFB had one of its senior bankers in Los Angeles respond, but he asked that his name not appear in print. That banker noted that both Michael Hooks and Mark Lanigan, also experienced managing directors, have agreed to stay and will co-head the CSFB shop.

"We are hiring people now, and we will continue to be the largest investment banking shop on the West Coast, by far, with well over 100 bankers," said the senior banker.

Just two weeks ago, the DLJ-CSFB office in Century City handled a $600 million high-yield placement for Scottsdale, Ariz.-based Allied Waste Industries Inc., and another $150 million debt offering for a portfolio company of New York-based Investcorp, noted the banker.

"You know, UBS Warburg is owned by a Swiss company too," said the CSFB banker. "So if they grow, we can grow too."

Contributing columnist Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal.