HealthQuest Capital Raises $110M Fund for Venture Growth Investments

August 19, 2014 - Dow Jones VentureWire

HealthQuest Capital, a new firm that Sofinnova Ventures is sponsoring, has raised a $110 million first fund it will use to help companies in markets such as medical devices, diagnostics and health-care information technology become self-sustaining.

Sofinnova Ventures has just raised a $500 million biotechnology venture fund. But members of the firm also saw opportunity in fields like medical devices and molecular diagnostics that aren't attracting as much venture capital as biotech. That led Garheng Kong, who was a Sofinnova general partner, to found HealthQuest Capital last year.

Sofinnova provides back-office support for HealthQuest, which held a first closing on its fund in early 2013 and made its initial investment late last year. The Menlo Park, Calif., firm has made three investments, backing Vestagen Technical Textiles Inc., a provider of textile products and technologies used in health care and other industries; First Aid Shot Therapy, a developer of liquid over-the-counter pharmaceutical products; and Castle Biosciences Inc., a molecular testing company focused on Orphan cancers.

HealthQuest, which plans to make about a dozen investments, often considers companies in locations that don't have much venture capital activity. The team finds that companies in these states are used to running lean, efficient operations and are attractive investment candidates. Castle Biosciences , for example, is based in Friendswood, Texas.

Many venture investors shy away from diagnostics because of uncertainty about the reimbursement process for novel tests. HealthQuest's bet is that companies that provide information that influences treatment decisions and lowers costs will emerge successful.

Castle's products include a test to determine metastatic risk in melanoma patients. This helps clinicians determine how aggressively to treat the disease.

HealthQuest originally sought $50 million but raised more because of strong investor interest. Limited partners are undisclosed, but they include endowments, pensions and family offices, according to the firm. The fund's terms are undisclosed.

Dr. Kong, who also has been a general partner with Intersouth Partners , previously invested in companies such as SARcode Bioscience Inc ., which developed a treatment for the signs and symptoms of dry eye disease. Shire PLC acquired SARcode last year.

The HealthQuest team also includes Partner Randy Scott, who was chief executive of Novamin Technology Inc., which was acquired by GlaxoSmithKline PLC ; Partner David Kabakoff , who was CEO of Salmedix Inc., a company acquired by Cephalon Inc .; and venture partner Tom Callaway, president and founder of Life Science Partner, a life science executive search firm. http://www.healthquestcapital.com