Increasing regulatory scrutiny from the U.S. Food and Drug Administration didn’t scare Venture Investors away from funding Ann Arbor-based biotech startup NanoBio Corp. in July.

But Venture Investors, which has an Ann Arbor office and some $200 million in capital under management, hopes that the FDA’s tightening regulatory standards are communicated effectively.

Jim Adox, managing partner of Venture Investors’ Ann Arbor office, said investors can’t fund biotech companies until they’ve developed an understanding of the specific regulatory hurdles the companies will face.

“When you don’t know, that’s the worst-case (scenario)”, Adox said.

Venture Investors was confident enough to participate in a $10 million funding round for NanoBio, a University of Michigan spinoff developing nanoemulsion technology that would be relatively new to the therapeutic marketplace. New York-based Perseus, majority shareholder of NanoBio, led the funding round.

Venture Investors has made 15 investments out of its current $117 million venture fund. Adox said the company would make another three to five investments out of its existing fund. But he expects to start raising money for the firm’s next fund within about 12 months. He recently spoke with AnnArbor.com business journalist Nathan Bomey:

How is the Michigan economic climate affecting your investment strategy?

Adox: We focus on early-stage companies. Most of these companies don’t have any revenue now, so it doesn’t have an impact today.

The one challenge is recruiting people from out of state. There’s such a cloud over Michigan right now that they really have to want to come here and work for the company.

Has the word gotten out nationally about Ann Arbor’s inherent value as a place for startups?

I think it has. We’ve got QuatRx, NanoBio, Accuri, HandyLab - all have national investors and there’s more than those.

There’s a network effect - people know about those companies, and then they know other funds.

You still need a good local investor, because they want to know locally what’s going on - can they trust this person, what they represent them to be.

That’s why there’s an opportunity to leverage local money with the big out-of-state money, particularly the coastal money, by having a syndicate with a local investor and a national larger investor.

How is the complexion of the companies knocking on your door for money changing right now?

There’s a lot more companies. And the complexion? I think they’re looking for any financing they can get. People are a lot more scrappy.

What gives you confidence in NanoBio’s technology?

It’s based on years of research by top researchers - Jim Baker and his team at the University of Michigan.

They’ve had really good interactions with the FDA, and the FDA has shown an appreciation and understanding of the basic technology and research.

They’re moving through the process pretty steadily and leveraging the (technology) platform now.

To what extent are you concerned that the FDA’s trend toward increasing regulatory scrutiny could eventually hurt some of your investments?

They’re definitely getting more conservative - that’s widely known.

The (question is) where will it stop?

Typically, when we make an investment, the company doesn’t have to go to the FDA or deal with them until Year Two, Year Three.

And if we don’t have the confidence of what are the ‘regs’ likely to be in Year Two or Year Three - if there’s any doubt - we’ll say, ‘Let somebody else invest in the early-stage and we’ll invest in the next stage, when they’ve removed the risk the FDA portion of it.’

If you kill the early-stage, at some point there will be no mid- or later-stage companies. That’s the challenge. Where’s the hurdle? Fix it, communicate it clearly to everyone, and then we’ll know and we can make decisions appropriately. But when you don’t know, that’s the worst-case.

For Venture Investors, what’s the next step in your strategy of surviving this economic climate and thriving?

We haven’t changed our strategy. We’re early-stage, a lot of university-focused investments. And we’re keeping our companies funded, building strong syndicates, and letting them focus on building their businesses.

We’ll be starting to raise our next fund sometime in the next 12 months as the economy turns.

You can e-mail AnnArbor.com's Nathan Bomey or follow him on Twitter.