1.18.11 | Brandon Glenn

Medical venture investing fell 5 percent for Midwest startups last year

Midwest healthcare startups raised $737 million last year, a drop of 5 percent from the prior year, according to a report from Cleveland nonprofit biomedical development group BioEnterprise Corp.

Biopharmaceutical companies were the top recipients, with 49 percent of the total. Medical device companies raised 38 percent of the total, and health software and services companies collected 14 percent.

The $737 million was the lowest amount for Midwest healthcare startups since 2005, when the total was (pdf) $550 million. Those halcyon, pre-recession days of 2007 were the high point, with more than $1.2 billion raised by Midwestern venture capital startups.

The number of companies receiving funding last year, 159, was similar to the prior two years (156 in 2009, and 165 in 2008).

All told, the numbers aren’t bad considering the turmoil that’s engulfed the venture capital industry in the past few years. Ten-year venture capital returns have fallen in recent years as the once-lucrative IPO market has slowed and technology startups no longer need as much capital as they once did to get rolling. That’s led to much debate in recent years about the venture model being “broken,” as many notable VC firms ratchet down the size of their funds and angel investors become increasingly important sources of funding for young firms. Many insiders expect the ranks of venture capitalists to thin substantially in the coming years.

By state, Illinois led the way with $161 million, followed by Ohio ($147 million) and Minnesota ($139 million). The numbers were similar when broken down by region, with Chicago coming in at No. 1, followed by Minneapolis, then Cleveland.

“Overall, the past year was a difficult one for emerging healthcare ventures in the Midwest and nationally, though investment activity picked up towards the end of 2010,” said Baiju Shah, president of BioEnterprise.

BioEnterprise’s report is somewhat at odds with numbers from the National Venture Capital Association (NVCA), which showed that the amount of venture money invested in Midwestern startups grew 45 percent to $818 million through the first three quarters of last year. However, the NVCA’s numbers include all industries, whereas the BioEnterprise numbers are specific to healthcare.

The following were the biggest Midwest venture deals involving healthcare companies last year, according to data from BioEnterprise: