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Healthcare venture capital deals continue downward trend

Brandon Glenn on October 17, 2011 Source: MedCityNews.com

Venture capital deal volume in the healthcare industry continued its downward trend in the third quarter, according to the latest report from a venture research firm.

The number of third-quarter healthcare venture deals stood at 143, the lowest in at least five quarters, according to New York-based CB Insights. The number represented a decline of 22 percent from the year-ago quarter, but a drop of just 3 percent from the second quarter.

“With chatter about an unfriendly regulatory landscape getting louder and a generally uncertain exit environment, healthcare venture capital continued its consistent trend downwards,” the report said.

Indeed, industry complaints about regulators — never the most popular people with the business community in the first place — have only seemed to grow louder this year.

In a survey of VCs released earlier this month, nearly 40 percent of firms said they had decreased their investments in medical technology companies in the past three years, and they expect the slide to continue for another three years. The survey was sponsored by the National Venture Capitalists Association's Medical Innovation & Competitiveness Coalition.

In terms of dollars, healthcare firms collected $1.7 billion in venture investment during the quarter. That was a drop of 4 percent from the year-ago quarter and a decline of 11 percent from the second quarter.

Still, the report did contain some good news for the health industry, particularly early stage companies: Health investors are increasingly turning their attention to seed deals. As a percentage of overall deals, healthcare seed investment (11 percent) hit a record high in the quarter, according to CB Insights.

“The seed VC investment gives investors a relatively low-cost option on companies they invest in,” according to the report. “In essence, these investments require minimal capital outlay and allow an investor to see a business take shape (or not) and then choose to invest in the future.”

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