VCs Are Investing Heavily in Healthcare

August 29, 2014
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$6.4 billion. That’s the amount of funding that VCs pumped into Healthcare in 2013 according to CB insights. Granted, 67% of that funding went to Medical Devices, Drug Development, and Biotech. Still, that leaves a lot of money for the other segments.

Investing in Healthcare is becoming extremely lucrative; so lucrative in fact, organizations that historically focused on delivering clinical care have developed their own VC arms. This is a unique business model shift – so what is the value of such investments?

$6.4 billion. That’s the amount of funding that VCs pumped into Healthcare in 2013 according to CB insights. Granted, 67% of that funding went to Medical Devices, Drug Development, and Biotech. Still, that leaves a lot of money for the other segments.

Investing in Healthcare is becoming extremely lucrative; so lucrative in fact, organizations that historically focused on delivering clinical care have developed their own VC arms. This is a unique business model shift – so what is the value of such investments?

vc investments in healthcare

At face value, it’s pretty clear that it opens up alternative revenue streams. Any ability to diversify often helps mitigate risks with market fluctuations and changing competition. This is uniquely important given the new payment and reimbursement models, as well as complex operating environments that are now being established in the healthcare marketplace. Further, these new investments are seen as assets to their business; an ability to be leading edge by capitalizing on technology that is not accessible by their competitors.

Even more interesting, as similarly outlined in a prior post, they may not just leverage the technology internally, they may decide to buy the company outright and begin offering the product to external organizations.

So how are they being successful?

First off, they are investing in resources that have the unique subject matter expertise to assess investment opportunities. Professionals from the investment, startup, and VC world are being brought on to essentially establish an internal “center of excellence” of sorts that can cull through various opportunities to establish a new offering.

Second, Healthcare is slowly recognizing that technology should no longer be seen as an impediment to delivering a higher quality of care. Instead, the appropriate adoption of technology and alignment to processes will ensure a successful mode of operations.

Further, in any industry, new companies have barriers to entry. Very often, these new companies are willing to “pilot” their system, application, product, or tools in order to establish a proof of concept that demonstrates value. Therefore, many large healthcare systems are seizing upon the opportunity of a quid pro quo type of structure – they negotiate with startups and early stage companies for access to their product in exchange for an investment – often this “investment” may be access to their entire network of facilities, providers, and patients, or actual financial sums.

Who is doing it?

Name the large healthcare system, and you would probably be right. The ones that have been more firmly established in the news for their involvement would be the Mayo Clinic, Cedars Sinai, and North Shore LIJ.

Why is this so important?

As the business model of healthcare organizations shifts, specifically in the provider space, so will the technology required to sustain their operations. Taking lessons learned from other industries and ensuring that the appropriate technology is in place will ensure that the industry as a whole is able to achieve a defined set of goals.

healthcare investments / shutterstock