Shifting Healthcare Venture Capital Investment

Posted on April 27, 2012 I Written By

John Lynn is the Founder of the HealthcareScene.com blog network which currently consists of 15 blogs containing almost 6000 articles with John having written over 3000 of the articles himself. These EMR and Healthcare IT related articles have been viewed over 13 million times. John also manages Healthcare IT Central and Healthcare IT Today, the leading career Health IT job board and blog. John is co-founder of InfluentialNetworks.com and Physia.com. John is highly involved in social media, and in addition to his blogs can also be found on Twitter: @techguy and @ehrandhit and LinkedIn.

Change is in the air when it comes to venture capital (VC) investment in healthcare. I wrote about this a few days ago on a post on EMR Thoughts called VC Investment in Healthcare. The final paragraph is a nice summary of my thoughts:

I think we’re seeing a shift in healthcare investment into a large number of smaller companies who can innovate as opposed to larger sums of money into medical device and biotech companies. In some ways we’re seeing the costs associated with a startup company in healthcare starting to come down the way they did in the IT side of things.

I was amazed by the timing of a post from my favorite venture capital blogger, Fred Wilson, called Can The Crowd Be More Patient?. His first paragraph provides a similar sentiment:

One of the most noticeable changes to the VC business over the past decade is the movement of investment allocation from capital and time intensive sectors like biotech and clean tech to capital efficient and fast moving sectors like internet and mobile.

Although, Fred offers an interesting twist on where sectors like biotech might get their funding in the future: crowd funding.

The idea of crowd funding is definitely beginning to take shape. Websites like Kickstarter and IndieGoGo have started the trend with no equity involved and the latest jobs act has opened up the door to allow crowd funding to happen with equity involved. For those who don’t know what crowd funding is, it could be 1000 people all “investing” $100 into a company that needs to raise $100,000. That means that 1000 people are all at very little risk, but the company gets a relatively large sum of money. Those who invest the $100 would own a very small part of the company and benefit in any upside the company experiences. It’s going to be a game changing way to fund entrepreneurship and will be an incredibly important investment trend.

The interesting thing is that we’ve seen this funding trend in healthcare for a really long time. Ok, they haven’t gotten equity for the investment, but how many of you have supported cancer research or diabetes research through a donation? That’s basically an investment in the companies that are doing that research.