THE PRIVATE EQUITY ANALYST

Two partners of Kleiner Perkins Caufield & Byers have left the Menlo Park, CA-based venture capital firm to form a venture firm that will invest exclusively in young health care companies.

Alexander E. Barkas and David Schnell, M.D. have formed Prospect Management Co., LLC, Palo Alto, CA, which is seeking to raise a $75 million fund, Prospect Venture Partners, L.P. (Prospect Ventures). Mr. Barkas and Dr. Schnell decided to strike out on their own in order [to] build a firm whose sole focus is health care and biomedical investing. By contrast, health care accounts for only about a quart of the investments at KPCB. The great bulk of the firm’s investments are in information technology.

Prospect Venture Partners would make investments of $3 million to $5 million apiece in early- and late-stage companies, including public companies. Target technologies would include biopharmaceuticals, health care services, “informatics,” medical devices and tools. Mr. Barkas and Dr. Schnell pursued similar investments at KPCB, where they led 12 transactions totaling $47 million over the past five years. Among the investments were Connetics, GeneMedicine, Geron, Microcide, Healtheon and TherOx. On the 12 investments, the partners report a 35% internal rate of return before fees and carried interest.

Merrill Lynch & Co.’s Private Equity Group is marketing Prospect Venture Partners’ fund.

The Prospect [Venture Partners] general partners are proposing to receive an industry-standard 20% share of fund profits, not the 30% share that KPCB’s partners, alone in the private equity community, enjoy. They also are seeking an annual management fee that would start at 2.5% of committed capital, and be adjusted upward for inflation annually.

At KPCB, meanwhile, the departures won’t alter the pace of health care investing, according to Partner Brook H. Byers. Mr. Byers said the firm intends to recruit a partner for its health care practice by year-end. Currently, the practice consists of Mr. Byers, who heads it, and Partners Dr. Cynthia T. Healy and Joseph S. Lacob. In the first half of this year, KPCB has invested in four health care companies.