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2011 In Venture Investing

By January 26, 2012Commentary

Health care services companies and medical device and biotech firms all typically need a fair amount of capital to get started and to grow.  Initially some of this capital may come from individual friends or “angel” investors, but eventually most companies need some form of institutional investment, which they typically get from venture capital firms.  The health of venture firms and venture funding is therefore critical to the national economy, as a lot of very good jobs are created in these small firms, and to health care, which is desperate for innovations in cost and quality.  For 2011, the National Venture Capital Association has compiled and released details on venture activity.   (NVCA Report)

Across all industries, $28.4 billion was invested in 3673 deals, which is up 22% from 2010 in dollars and 4% in number of transactions.  This was the third largest investment amount in the last ten years, but still below the really peak years.  Clean technology and Internet firms got a large bump in investing, but health care is holding its own, with the biotech sector seeing a 22% increase in dollars to $4.7 billion and a 9% decrease in deals.  Medical devices similarly had a 20% dollar investment increase but a 2% decline in deals.  In both cases deal size is obviously increasing, which partly reflects exit difficulties requiring larger investments to get to exit and greater regulatory compliance costs in product development.

Health care services companies typically need less capital than life sciences firms and that is reflected in the $352 million invested in 44 deals in 2010 versus $328 million in 43 transactions in 2010.  It is somewhat alarming to see that seed stage investments dropped by 48%, although the number of deals stayed the same.  This may reflect fewer startups, but more likely means that venture firms had to continue funding later stage companies for longer than they anticipated, and early stage  and expansion stage dollars invested did rise.   More encouragingly, first time financings rose by 12% in dollars and 11% in deals, although health care was not overly represented in those transactions.


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