Earlier today Nathan Vardi at Forbes broke the news that one of biotech’s most notable investors, Steve Burrill, was ousted from his own company’s fund and has been sued for fraud by a former managing partner. The news hit the biotech community like a major earthquake, particularly in the Bay Area where Steve has been advising and funding bitoech companies since the the founding of Cetus and Genentech.
Reporting from documents just filed with the California State Court in San Francisco, Vardi writes that thirteen investors to Burrill Life Sciences Capital Fund III, including the Treasury of the State of North Carolina, Oregon Investment Fund, Unilever, Monsanto, and Celgene removed Steve as general partner of the fund in March.
And why? The investors in Fund III claim that the Glass Ratner Advisory Capital Group audited the fund and reported that nearly $20 million had been paid to “various designees and affiliates” beyond what had been earned in management fees.
Steve Burrill at One Embarcadero Center
Steve Burrill has built up a venerable name in biotech, having participated in getting the first biotech companies off the ground, funding some of the winners over the years, and publishing financial data and other industry news in the The Burrill Report.
We’ve featured Steve on the program each of the last three years to review his annual State of Biotech book which covers the latest trends in everything from the R & D crisis in big pharma to the new digital health apps.
While I’ve heard various opinions about Steve--most of which go something like “Steve is all about Steve Burrill” and “Steve is a brilliant guy, but too heavy handed”--allegations of fraud and dishonesty have never been among them. If true, these claims would stain what has been a phenomenal career.
The Forbes scoop has been tweeted right and left today, but with no more comment than:
@ArthurKlausner wrote the most in his tweet: Stunning News about Steve Burrill -- hope there’s an “explanation.”
Alex Lash of Xconomy put out a piece this afternoon with the same details from the Forbes article and a link to the fraud lawsuit against Steve filed by Ann Hanham, former managing partner at Burrill and Co.
A story like this takes some time to digest.
I emailed Steve this morning for comment, but so far nothing has come back.
And I’ve reached out to some of our local advisors, but no one wants to go on record yet.
Steve Burrill has been an advisor to Mendelspod, and agreed to an in-depth interview shortly after we got up and running. (It doesn’t take long to run into the Burrill brand in this industry.) He’s been very approachable and even offered up his rolodex, saying he’d reach out to anyone we wanted to get to the program. We’ve partnered with Burrill and Co.’s media division, attending and reporting on their always high level conferences. Last year Burrill and Co. partnered with the Buck Institute on a conference on aging that was a first of its kind. I’ve valued all of my chats with Steve, both formal and informal, over the past few years. He’s offered great advise and pointed us to key trends.
At Burrill's Personalized Medicine conference last Septemeber, as I reported here, there was quite a break in tone from previous conferences. After that we couldn’t reach some of our steady contacts in the media division. On December 3rd, Luke Timmerman, biotech editor at Xconomy wrote a piece, Burrill VC Fund Splits into New Firm, Biomark, after Short Marriage. Timmerman interviewed Steve and partner David Wetherell for the piece and even probed them to see if there were any “disagreements” over startegy with what was called the Burrill Capital Fund IV.
“No,” came Wetherell’s answer.
Well, it turns out there were already problems with Fund III. According to the Forbes piece, Burrill and Co’s managing partner, Ann Hanham “discovered that a substantial portion of the money that had been raised from Fund III limited partners had gone missing.” Hanham’s number? About $20 million.
In what appears to be the most damning evidence against Steve are quotes from an email he himself wrote urging Hanham and her colleagues not to report the missing funds to the investors.
“We can earn our way out of trouble,” Steve wrote. “What we need is revenue to solve our problems n just timely enough to meet any capital calls which might be needed . . . Each of u are part of the solution.”
I've heard it said around the industry that Steve doesn’t hire anyone who will give him trouble. Perhaps that all changed with Ann.
So far it’s a "she said" story without the "he said." But with some big consequences. The investors of Fund III have heard enough to be convinced that they are done with Steve.
Steve has been using the title, CEO of Burrill Media. As Timmerman reported back in December, Steve had let go some of the media staff and made contractors out of the rest in what he called a "rightsizing." For example, Danny Levine has moved on to create his own company, but still produces the weekly podcast for The Burrill Report.
I interviewed Steve just last month to go over his annual book (which came out on time), and Steve carried on pretty much as usual. I noticed in his email signature that his address had changed from the 27th floor of the prestigious One Embarcadero Center building to a “Suite 120” in The Presidio. A fire engine siren sounded during the interview. With the address change, I obvserved to Steve that he must be down on the ground floor now.
“Yes. I’m very grounded now,” he replied.