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VC funding is up-so don't mess up your shot at getting your share

Brian O'Connell on September 9, 2011 Source: Kauffman Foundation

Entrepreneurs – and the U.S. economy – got a double-dose of good news recently, as venture capital investment in the second quarter of 2011 rose 19 percent.

Even better, the life sciences sector – defined as biotechnology and medical device industries – saw a 37 percent rise in venture dollars, and a 12 percent upward spike in deal volume. All told, 206 deals yielded $2 billion in new funding, according to the National Venture Capital Association.

"The rise in venture capital investments going into the life sciences and Internet sectors can be attributed to the increase in exit activity in the life sciences sector and attractive valuations for Internet companies," noted Tracy T. Lefteroff, global managing partner of the venture capital practice at PwC US.  "The exit market for both biotech and medical device companies has been active over the past year, and this has encouraged VCs to put more money back to work.”

That’s all upbeat news for healthcare entrepreneurs, but let’s not break out the champagne yet. The economy is still in the doldrums and any progress made on the VC front is bound to be moderate, at best.

In the meantime, healthcare startup owners can spend some time working on tactics designed not only to get them face-to-face with venture funders, but to get into their wallets, too.

From time to time, this blog will reach out to the venture community for tips on getting that job done. First on the docket this week is the VentureBlog, written by David Hornik, an information technology investor at August Capital.

Hornik tells the tale of a business startup owner who got off on the wrong foot (and that’s putting it lightly) with Hornik on a venture funding deal.

Here is how Hornik describes it:

I had an email exchange with a guy earlier today. After receiving a 30 second description of this entrepreneur's business (literally 30 seconds), I reached out to him to let him know that I thought what he was doing was interesting and asked if he would like to get together to talk more about what he's working on. Here's the email I got back from him:

“Would you be interested in investing? We aren't in fund raising mode at the moment, but would be interested in a 30-minute conversation if that would bring you to a decision if you are interested in putting in money as a convertible note…. Currently we don't have time for due diligence.”

I'm not sure which is more disheartening, 1) the idea that an entrepreneur would think this is a reasonable response to a request to get together and talk about his business or 2) the fact that there are "investors" out there who would consider putting money into a company after receiving such an email (in fact, I'd be willing to bet that there are "investors" who have already put money into this company under the same circumstances).

Hornik, a seasoned investor, notes that there is “lots of money” out there for startup owners, but that’s no reason to try to big-foot a venture firm with an email like the dismissive one above.

Healthcare entrepreneurs would do well to take a cue from Hornik, and not treat venture funders like ATM machines. It could mean the difference between a flood of funding cash and a continued dry season, financing-wise.

And no, the business didn’t get Hornik’s money – and likely anyone else’s, either.

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