Venture funding environment ‘remains very challenging’ for Midwest health care start-ups

Updated 2:08 p.m. Saturday, July 25, 2009.

CLEVELAND, Ohio — Investments in Midwest health care start-ups fell 9 percent to $402 million in the first half of the year from a year ago, according to the latest BioEnterprise Midwest Health Care Venture Investment Report.

Health care investments in 10 Midwestern states and one region fell even more – 46 percent — in the first half of the year from a record-setting pace in 2007, BioEnterprise said in its report.

“While Midwest health care venture investment is down from 2008, the region’s companies are currently faring better than their national peers,” Baiju Shah, president and CEO of BioEnterprise, said in a written statement. ”However, the venture funding environment remains very challenging for Midwest health care start-ups.”

As usual, Minnesota led the way in financings during the first six months of the year, attracting $118 million for a dozen biopharmaceutical, medical device and health care information technology companies, BioEnterprise said. Ohio followed, raising $87 milion for 33 companies. Michigan came in third, with $65 million for five companies.

Nationwide, venture investments in biotechnology, health care services, and medical device and equipment companies were down 37 percent to $2.6 billion in the first half of the year from a year ago, according to the National Venture Capital Association and its MoneyTree Report collaborator, PricewaterhouseCoopers, which released their data last week.

Second-quarter venture capital investing did rebound 15 percent to $3.7 billion from the first quarter, including all types of companies, according to MoneyTree. Investments in medical and health care companies rebounded 44 percent to $1.5 billion from the first quarter.

Meanwhile in the second quarter, “investments in life sciences companies represented the highest percentage (pdf) of total venture capital investments (42 percent) since the inception of the MoneyTree Report,” said Tracy Lefteroff, global managing partner of the venture capital practice of PricewaterhouseCoopers, in a written statement. MoneyTree counts biotechnology, and medical device and equipment companies in the life sciences category.