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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 10 blogs containing over 8000 articles with John having written over 4000 of the articles himself. These EMR and Healthcare IT related articles have been viewed over 16 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.

Fred Wilson on Healthcare IT Investment

Posted on November 28, 2011 I Written By

John Lynn is the Founder of the HealthcareScene.com blog network which currently consists of 10 blogs containing over 8000 articles with John having written over 4000 of the articles himself. These EMR and Healthcare IT related articles have been viewed over 16 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.

One of my favorite venture capitalist bloggers (yes, I’m a nerd like that) is Fred Wilson from Union Square Ventures. He’s been posting something like every day for the past 10 years or something close to that. I’m sure I take a lot of my blogging style from him which is funny since I mostly write about EMR and healthcare IT, but I’m only at 6 years of blogging. [Excuse the digression]

Anyway, yesterday Fred wrote a post about his view of Healthcare investment. Being in the healthcare IT world where he’d want to invest I read with keen interest to hear his thoughts. The first and last paragraph of his post sums up his position on healthcare investing:

A few weeks ago, I met with a VC who has been investing in healthcare for over 30 years. He asked if we invested in healthcare and I told him that we’d like to but we don’t really know how to fit it into our investment thesis which is focused on large networks of engaged users disrupting large markets. Clearly healthcare is a large market, possibly the largest measured as a percent of GDP. But we haven’t seen many large networks of engaged users emerging in healthcare.

It is likely that we’ll be doing more looking and studying and less investing in healthcare for a while (as we did in education). But I’m hopeful that entrepreneurs, industry observers, and of course all of you, will help us develop a thesis that allows us to start investing in healthcare. Like education, it feels like a market where you can make strong returns and also help facilitate important and needed changes.

Fred does clarify in his post that there are probably a lot of great healthcare IT investment opportunities out there, but that doesn’t mean that those opportunities meet the investment thesis for their VC investment portfolio.

I left my gut reaction to Fred’s post in the comments as follows:

One challenge with your investment thesis for healthcare is that healthcare is somewhat unique in that a HUGE amount of market power (see pharma, other medical procedures) is held by such a small number of people (see doctors). So, there’s a huge market, but there’s not a huge number of users to engage. Of course, there’s still the consumer (patient) side where you could have the large engaged users. Plus, patients are slowly becoming more engaged in their healthcare.

As a side note, I’ve started kicking around the idea of hosting a Healthcare “Disrupt” for healthcare IT companies to pitch their companies. Could be a great place to continue your research.

Fred then replied:

yes, that consolidation of market power is the primary reason we have avoided healthcare to date

As I’ve thought more about the consolidation of market power, healthcare is not completely unique in this but it does make for an interesting dynamic that doesn’t exist in a lot of consumer applications which Fred Wilson usually focuses on. Although, the patients getting involved could swing that pendulum the other way enough to get Fred Wilson and similar investors to start investing in healthcare.

Also, I’m dead serious about the idea of doing a Healthcare “Disrupt” like conference. We’ll see if we can get all the right people in place to make it happen.