Venture capital rediscovers service
Reform law could fuel trend in investor interest
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.