Foundation Medical Raising $150 Million For Device Companies

Foundation Medical Partners is in the market raising $150 million to invest in medical device companies, according to a source familiar with the situation. The vehicle, Foundation Medical Partners 3, has closed on $63 million since its launch in 2008, according to a regulatory filing. Five million of that is the GP contribution. The Rowayton, Conn.-based firm has engaged Mallory Capital as its placement agent.

The firm hopes to hold a final close by the end of Q1. It’s already done two deals from fund three: a venture investment in Vertos Medical, which makes devices for spinal disease treatment, and a company called Smithtown Medical, the source said.

Foundation Medical has a unique profile because one of its largest LPs, Cleveland Clinic, is a bit of a strategic investor. The $5 billion non-profit hospital helps the firm with deal flow and due diligence on investment ideas. Senior Cleveland Clinic personnel typically sit in on Foundation Medical’s investment meeting and actively work with portfolio companies to develop products. The hospital, which President Obama often cites as an example of health care industry best practices, has invested $65 million across Foundation Medical’s three funds. Cleveland Clinic has around $5 billion in annual revenues and has not invested with any other buyout firm.

The firm recently sold Viseogen, a maker of cataract surgery products, to Abbot Labs for $400 million. The deal, which closed October 20, returned $20 million to fund two, posting an IRR of 65% and a 3.5x cash-on-cash return, the source said.