Horizon 3 Healthcare is a Wholesale Managed Investment Scheme, which is an unlisted Unit Trust.
While we are not a Limited Partnership, we are open to discussions with potential partners that want to participate in the future of Horizon 3 Healthcare and are willing to consider the needs of a potential significant investor in the fund.
Investors are subject to an initial lock-up period of 3 years from August 2020, and then can redeem subject to liquidity with a 6 month notice period. The exit strategy for the fund in it’s investments is to have liquidity events over a 3-5 year period and as an unlisted unit trust, any gains will be distributed to unitholders. At that time we expect to have discussions with unitholders regarding their capital requirements. Outside of liquidity events we expect that we’ll provide a more liquid vehicle than a traditional VC fund due to our portfolio construction containing a mix of listed and unlisted companies. As long as we maintain listed company exposure we offer liquidity subject to the notice period.
If you are investing at a later stage, how do you ensure you are not overpaying / buying in when the acquisition is priced in already, increasing the chances that the business gets acquired for its worth without a premium?
Valuation is an important component, and if we feel there is no take-over premium to be paid and the acquisition is already priced in we won’t invest. It is those cases where we feel the company is valued under what we expect the market to pay that we will be interested to invest, subject to the rest of our due diligence process stacking up favourably. Our investment decision for each portfolio company is predicated on the real prospect to achieve a 1X return per annum of investment.
We do not have restrictions on portfolio construction for a % to be domestic vs. international exposures. While we are seeing significant amounts of deal flow, we treat each opportunity on a case by case basis independent of its jurisdiction. Over time, we expect there to be a mix of domestic Australian portfolio companies along with international companies, but we do not know if that will skew one way or the other in the short term. We take a similar approach to the private vs. public markets. The nature of the Australian listed market is that the majority of the listed life sciences companies are commercialising technology through the clinic rather than commercial entities today. We are interested in the best technologies and people independent of jurisdiction and corporate structure.
Our investment horizon is 3-5 years in an industry where it can take 10+ years to take a product to market. As such, we stay away from start-ups. However if there are comparable transactions in a sector that is exciting we are seeing pharma companies start to transact on pre-clinical data. As such, our definition of later stage is driven primarily by our expectation of how long we’d need to maintain our investment before exiting to return capital to investors.
For an investment to be exciting to us it means there are only 1 to 2 more milestones the company needs to achieve to generate big pharma interest. We are observing pharma industry players come further and further down the development pathway for specific technology segments. They are setting up innovation labs to partner with entrepreneurs working in fields of interest and the pharma industry is generally public about their areas of interest. While we agree pre-clinical is generally higher risk than clinical stage, our focus on the next 1 to 2 milestones to be achieved to drive a liquidity event is a de-risked approach relative to backing a start-up that may be 5 years and 5+ milestones from it’s liquidity event.
We aim to hold portfolio companies for 3-5 years before a liquidity event helping them to achieve their next milestone or two in that timeframe. Across a portfolio of 10 companies we expect to have 3-4 companies that will achieve exits to drive multiple liquidity events for investors over that timeframe. We are an evergreen fund, so the expectation of the team is that we will deliver portfolio returns for investors, return capital and then rebuild the portfolio. Our aim is to deliver investor returns, work with great people in portfolio companies, drive real change in treatment technologies, and repeat that over the long term.