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DeWaay launches $10 million venture fund


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Travis Mickle had funding offers from several Midwest venture capital firms, but only one provided the opportunity to keep investors’ money inside the state of Iowa.

Mickle founded KemPharm Inc. in North Liberty three years ago, with a goal of re-engineering popular pharmaceuticals on the market to make them safer, more effective and less prone to abuse. First on the company’s list of projects is to develop a retooled version of Vyvanse, a drug Mickle developed several years ago that’s now on the market to treat attention-deficit hyperactivity disorder (ADHD).

KemPharm is one of four late-stage start-up companies in which DeWaay Capital Partners, the investment banking arm of DeWaay Capital Management, has invested as part of its first venture capital fund. The fund recently closed out the private offering, with 98 investors committing just over $10 million.

“It’s great to see somebody like Travis, who could write his own ticket with any investment bank in the country, who wants to give back to the state of Iowa,” said Don De-Waay, the investment firm’s founder.

KemPharm is working on developing a new variation of Vyvanse that will peak more slowly, making it less attractive to adolescents seeking to get high, and to mitigate some of the drug’s side effects as well. The company plans to apply the same approach to a widely prescribed pain medication, as well as a drug used to treat bipolar disorder.

Offering a private equity fund to its clients is another step that Clive-based DeWaay Capital Management is taking as it further diversifies its wealth-management services. The firm works with affluent to high-net-worth clients, typically business owners and professionals with investable assets of $100,000 up to multimillionaires.

“We deliver very specialized products and investment opportunities that people don’t get in other places,” said DeWaay, whose company manages more than $1.1 billion in client investments. The firm provides a highly personalized approach for its clients and offers extensively researched investment options normally available only to ultra-wealthy investors, he said. “The idea here is that instead of having the mass-production, fast-food approach to (investing), this is fine dining.”

DeWaay Capital Partners will likely launch a second private equity fund in the future, DeWaay said.

“One of the things that we’ve been very fortunate with, because of our connectivity with clients, because of their experiences with us, we continue to be able to raise money, and that’s put us in a very good place,” DeWaay said.

The initial fund, which required each investor to commit a minimum of $100,000, will add more companies to build a portfolio of about eight to 10 companies, DeWaay said.

“Most of the time, we’re after companies that are revenue-neutral, if not positive cash flow,” he said, “companies that are at that point where the trajectory of revenue and bottom-line profit are going to be up substantially. And hopefully in a short amount of time we’re giving (investors) the money.”

The fund’s investment horizon is relatively short-term.

“We’re not looking at companies we’re going to hold on to for 10 years,” DeWaay said. “We’re looking for companies that we think have a reasonably short term to liquidity and that have high reward. We don’t do early-stage companies; the mortality is way too high.”

Other portfolio companies include Des Moines-based GCommerce Inc., a technology company that specializes in providing supply-chain optimization software to clients in the aftermarket automotive parts industry.

“We’re very excited about (GCommerce),” DeWaay said. “They’ve clearly shown what I would say in the last eight to 12 months is nearly miraculous growth. Software as a service is a very hot area, and they literally have ownership of their space in aftermarket auto parts software. They have significant opportunities for substantial recurring revenues, which is a very positive thing on Wall Street.”

Another Iowa software company is part of the portfolio, but DeWaay requested that its name not be disclosed because the company is in the midst of a private offering.

The fund has also invested in TrueChoice Solutions, a New York-based company that develops predictive customer-preference measurement tools for Fortune 500 clients, among them PepsiCo Inc., Intel Corp., OfficeMax Inc. and Dell Inc.

“We also have ‘sidecar’ investments in the companies,” DeWaay said, referring to individual investments ranging from $10,000 to $50,000 that his clients have made in the companies. “With KemPharm, far and away the majority of the money invested came from individual investors’ direct investments, rather than the fund.”

Mickle said he discovered DeWaay Capital Management after his company’s accountant suggested attending a personal wealth management presentation offered by the firm. That led to a four-hour private meeting with Don DeWaay, who spent most of that time asking questions about KemPharm, Mickle said.

“We actually had other offers from larger Midwest venture capital (VC) groups,” he said. “We preferred DeWaay because their approach was different from the VCs. They were less concerned about return on investment or what kind of control they could get in the company. They took a very hands-off approach with their investment.”

Mickle, who holds a doctorate in bio-organic chemistry from the University of Iowa and 50 U.S. and international patents on his work, played a key role in taking his former company, New River Pharmaceuticals Inc., public. The company was acquired in 2007for $2.6 billion by Shire PLC.

“I think it’s a shame that not more founders or scientists take an interest (in the financing end of their companies),” Mickle said. “Most of what I learned about business is what I learned at New River.”

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