Two recent exits involving portfolio companies create momentum for the investment arm of dental insurer Delta Dental of Michigan.
The 4100 Group Inc. held positions in both Menlo Park, Calif.-based Gauss Surgical Inc. and Ciitizen Corp., a genetics testing company in Palo Alto.
The two exits will generate “good returns collectively” for The 4100 Group, said Scott Lancaster, chief investment officer and managing director of private market investments. Both exits follow the East Lansing-based 4100 Group’s deployment of its initial capital allocation from Delta Dental. Additional plans involve the formation of a successor fund that could reach up to $150 million.
“Any time you stand up a fund with a single LP (limited partner), and they haven’t ventured off into the venture space, getting everybody acclimated to the higher risk, higher reward venture investing requires a little bit of time. Certainly getting these two across the goal line in under a year will help our cause internally,” said Lancaster, who’s based in Grand Rapids and called the exits “a great win” for The 4100 Group.
“We have essentially built out a complete portfolio with our initial tranche of capital from Delta Dental, so I think this will give us a little internal street cred to be able to go back and ask for additional capital to deploy as we recycle the returns from those two exits,” he said.
Health care tech focus
Kalamazoo-based Stryker Corp. this month closed on the acquisition of Gauss Surgical, which developed a monitoring system known as Triton to provide clinicians an accurate estimate of a patient’s hemoglobin and blood loss during surgeries and births. Terms of the deal were undisclosed.
The publicly traded Invitae, based in San Francisco, plans to buy Ciitizen in a $325 million deal that was announced on Sept. 7. The stock-and-cash deal is expected to close this month.
The 4100 Group acquired positions last year in both companies from Spectrum Health Ventures LLC. Lancaster previously worked as clinical director at Spectrum Health Ventures and joined The 4100 Group in July 2020. He served on boards at both Gauss Surgical and Ciitizen following Spectrum Health Ventures’ initial investments.
His hiring brought expertise in venture capital to the investment team at The 4100 Group, which Delta Dental of Michigan and Delta Dental of Ohio formed as a joint venture in 2018. The 4100 Group initially focused on making later-stage equity investments primarily in the financial services sector and has been seeking add-on or tuck-in acquisitions to complement those holdings, said President and CEO Mike Gilmore.
“We have a couple deals right now related to that,” Gilmore said. “We’re looking for things that might be able to help enhance their business processes.”
Grand Rapids institutional asset management firm Red Cedar Investment Management LLC is among The 4100 Group’s present portfolio companies. The 4100 Group also owns a wealth advisory firm in Cleveland, as well as Lansing information technology solutions company Dewpoint Inc., which has an office in Grand Rapids.
With the addition of Lancaster last year and investment adviser Dr. Garrett Vygantas in February, The 4100 Group also seeks to make investments in health care tech companies that are past the seed stage.
“In general, we’re looking for technologies that impact the patient-provider ecosystem in a positive way to reduce costs and improve outcomes,” Lancaster said.
More than capital
Like many investment firms, The 4100 Group offers support to portfolio companies beyond the venture capital invested. Both Lancaster and Vygantas are doctors, experienced investors in the sector, and entrepreneurs who have started and sold companies.
“We can guide our management teams from mentorship and where to avoid the potential pitfalls in terms of laying out the path to profitability,” Vygantas said.
The 4100 Group makes investments in companies slightly past seed stage and at any given time has a pipeline of about 95 prospects. The company likes to invest along with a syndicate of investors and expects to extend seven to 10 term sheets annually, said Vygantas, who is based in San Francisco.
The COVID-19 pandemic has provided a “big lift” in innovation in health care in areas such as telemedicine, Vygantas said. As well, The 4100 Group is looking at other areas in health care such as long-term and financial care planning, therapeutics and unmet medical needs.
The pipeline of potential investment prospects “constantly refreshes faster than we can keep up with,” Vygantas said.
The success of the two exits in Gauss Surgical and Ciitizen occurs as The 4100 Group pursues formation of its next venture capital fund. The 4100 Group will look at whether to bring in additional limited partners into the fund’s investor mix, Vygantas said.
The timing of when the new fund can begin operating remains undecided. However, Vygantas said: “We have early signals of momentum here, and our goal is to strike while the iron is hot and build the value for our limited partners as rapidly as possible.”
EDITOR’S NOTE: This story has been corrected to identify Red Cedar Investment Management LLC as an institutional asset management firm.