Midwest IT/life science VC: We see deals that other VCs fly right over

East Coast and West Coast VCs have easy access to the most dynamic technology and life science markets in the country. But Midwest VCs have access to smaller deals and promising companies that oftentimes fly under the radar of the big coastal investors.

Some have the best of both worlds.

Athenian Venture Partners, for one, has offices in Boston and San Diego, but its headquarters are tucked away in Athens, Ohio, the home of Ohio University. The firm manages four funds totaling about $105 million and splits its investments between promising information technology and healthcare companies, according to partner David Scholl. Its portfolio includes companies across the country, from LygoCyte Pharmaceuticals in Montana to Micromet (acquired by Amgen in January) in Maryland to Verus Pharmaceuticals in San Diego.

Scholl is one of the firm’s three partners based in Athens (there are five partners total). He comes from the world of healthcare startups, too: As the former president and CEO of Diagnostic Hybrids, he helped build the startup to a $138 million company that merged with Quidel Corp. (NASDAQ:QDEL) in 2010.

In an interview with MedCity News, Scholl shared what he sees as the most promising areas for investment right now, what he wishes he would have known as a CEO and how geography impacts investing.

Athenian works in two very dynamic industries right now. What’s your niche?

You are what your expertise allows you to be. We’ve got two substantial practices within one fund — that helps us diversify our portfolio. And more recently, we’re starting to see convergence of those two disciplines.

We take active seats in about 90 percent of the companies we invest in, and we persist. Some funds will view deals that don’t work out as deals to get out of. If we think the business thesis we invested in in the first place is still the right thesis, we will continue to persist. It takes time to build great companies. I think that’s another trait of Midwestern venture capitalists more than most — we stay invested as long as we think that the business thesis is still solid.

What are the advantages of having a physical presence on the East and West coasts and in the Midwest?

Our Ohio presence is an important part of our story. Other VCs may fly right over some of these people, and we’re right in the middle of the trenches. Because of our presence in Ohio, we’ve got a good network. We hear of deals. We’ve got good relationships with regional economic developers and accelerators. In the same vein, we see a lot of dealflow on the East and West coasts. We have a pretty good feel for national perspectives, especially in areas like personalized medicine, devices and diagnostics.

You invest in IT and health companies, but what about opportunities in health IT/digital health? Are you interested in those, and how do you evaluate them?

The way we look at the spaces are, it depends on what side of the fence the opportunity lies on. The ownership of that opportunity lies where it’s going to be utilized. If you have IT that goes into the underpinning of healthcare, the healthcare guys will show interest first. A good example of that is, in EMRs, there’s certainly a significant push to take all health records into an automated, data-reduced state. The market looks ripe for something like that. We’ve reviewed some of those, but in the past we’ve felt it was a bit premature. We recently saw one that kind of grasped our attention. The time is around the corner for venture companies to invest in that kind of space, to make sure we don’t miss out on something.

Telemedicine is another area where healthcare will take the lead. That’s not that far away from being a feasible, viable and a good way to deliver healthcare. As part of this whole greater movement toward more efficiency for healthcare, that’s a great example of how healthcare and IT could merge, and we are uniquely situated to take a look at a deal like that.

You recently invested in Aerpio Therapeutics, which spun out of another of your portfolio companies, Akebia Therapeutics, and has the same management team. Does a repeat entrepreneur or management team make you gravitate more toward a deal?

In biotechnology, you’ve got the regulatory navigation plan that has to be built. I believe that, it’s not a perfect correlation, but success breeds success is probably a pretty meaningful theme when it comes to this regulatory environment. In therapeutics, when you invest in someone who’s done it once, the learning curve is something very leverageable, and it gives you more confidence. There’s a lot of things that can go wrong that are out of the management’s control, but it’s sometimes difficult to enter a highly regulated field if the entrepreneurs haven’t gotten some experience under their belt. Lately, we’ve seen a lot of that experience coming from large pharma companies. It’s exciting to see people come out of a large pharma environment and become entrepreneurs, turning that learning into their own commercial effort.

What particular areas in healthcare are sparking your interest right now?

Stem cells and regenerative medicine are interesting. There’s no question that we’ve seen deals all the way back to 2001-2002, some of them companies that had spun out of NIH dollars focused on being early trendsetters that we just didn’t think the timing was right. But Daniel (Kosoy, the firm’s San Diego-based partner) and I both understand the fundamental technology that’s being talked about, so we keep an eye on that. In personalized medicine, the utility of biomarkers to redefine the diagnosis of certain diseases is attractive for us to watch.

What about areas that you won’t invest in?

We always ask ourselves a question: Is this business and this disruptive technology ready for prime time, or is it more oriented toward a market opportunity that’s a fad? When we’ve failed, it’s because we made a bet and maybe, on the clinical side, it gets into a pivotal trial and it just isn’t as effective as we’d have thought. I think that we try to minimize our fail rate by investing in things that are actually real. We didn’t go anywhere near the dot-com craze.

You’re a former business guy. What do you know now about getting VC money that you wish you would have known then?

I’d say the importance of going out to the marketplace and really understanding the market need early on.  You don’t want to invest in something no one wants to buy. No matter how successful our experience was at Diagnostic Hybrids, there are times when maybe we didn’t assess the market potential and dynamics as much as we should have early in the process instead of going down the technology route first.

Editor’s note: This interview has been shortened and edited for clarity.