Ven­ture cap­i­tal re­dis­cov­ers ser­vice

Re­form law could fuel trend in in­vestor in­ter­est

Modern Healthcare - - Front Page - Melanie Evans

Ven­ture cap­i­tal in­vest­ments slowed dur­ing the fi­nal sum­mer months, but health­care ser­vices drew more ven­ture cap­i­tal, and in­vest­ment in­sid­ers say mar­ket changes un­der health re­form could draw even more in­ter­est.

A $50 mil­lion in­vest­ment in Life Care Ser­vices, a Des Moines, Iowabased se­nior liv­ing com­pany, ranked among the largest ven­ture cap­i­tal deals in July, Au­gust and Septem­ber, and health­care ser­vices—which in­cludes se­nior liv­ing, hos­pi­tals, clin­ics and physi­cian prac­tice man­age­ment, as well as some health­care in­for­ma­tion technology—was one of a few sec­tors to see an in­crease in deals and eq­uity in­vest­ment in the third quar­ter, ac­cord­ing to one sur­vey of ac­tiv­ity.

Mark Heesen, pres­i­dent of the Na­tional Ven­ture Cap­i­tal As­so­ci­a­tion, which pro­duces the sur­vey with con­sul­tants Price­wa­ter­house­Coop­ers, said in­vestor in­ter­est in health­care ser­vices may prove to be fleet­ing or could be the start of a trend fu­eled by health­care re­form law, which is ex­pected to ex­pand in­surance cov­er­age and in­crease de­mand for health­care IT ser­vices. “The ques­tion is whether this is a blip or a long-term in­ter­est,” Heesen said.

Ven­ture cap­i­tal in­vest­ment in health­care ser­vices in­creased 156% to $128 mil­lion in the third quar­ter from $50 mil­lion in the sec­ond quar­ter, ac­cord­ing to the quar­terly re­port. Life Care was one of 15 com­pa­nies to se­cure ven­ture cap­i­tal in the third quar­ter from eight the prior three months.

Over­all, ven­ture cap­i­tal de­clined in July, Au­gust and Septem­ber com­pared with the prior three months ac­cord­ing to the MoneyTree re­port, which re­lies on data from Thom­son Reuters. Two sig­nif­i­cantly larger health­care sec­tors—biotech­nol­ogy and med­i­cal de­vice and equip­ment com­pa­nies—saw fewer deals and less new eq­uity in July, Au­gust and Septem­ber com­pared with the prior three months as well (See chart).

Last quar­ter’s de­cline in ven­ture cap­i­tal came af­ter six months of more ro­bust ac­tiv­ity that had been wel­come af­ter the drop in ven­ture cap­i­tal in 2009.

Heesen said the weak econ­omy and poor re­sults from long-term in­vest­ments made dur­ing the technology bub­ble of 1999 and 2000 curbed ven­ture cap­i­tal in­vest­ments last year. Ven­ture cap­i­tal firms were also un­able to exit deals in the past two years as mar­ket un­cer­tainty cooled ini­tial pub­lic stock of­fer­ings and cor­po­rate ac­qui­si­tions, he said. Ven­ture cap­i­tal in­vest­ment fell to

Indig: IT sec­tor has at­tracted more in­ter­est from in­vestors.

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