Venture investment in Midwest healthcare startups rose 10% last year

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The good news for healthcare startups in the Midwest is that they raked in 10 percent more venture capital dollars in 2011 than the prior year.

The bad news is that the 2011 total ($810 million) was still less than the amount raised in every year from 2007 to 2009. Venture fundraising by Midwest healthcare startups is down 34 percent from its 2007 peak of more than $1.2 billion, according to the latest annual venture report from Cleveland-based business development group BioEnterprise.

Minnesota ($223 million), Ohio ($178 million) and Missouri ($169 million) led midwestern states in attracting investment dollars in 2011.


In terms of the healthcare industry sector, investment dollars were spread out fairly evenly in the three major categories: medical devices (36 percent), health IT and services (32 percent), and biopharmaceuticals (31 percent).

Going forward, the outlook for healthcare startups in the Midwest seeking to raise venture funding looks shaky. Mark Heesen, president of the National Venture Capital Association, last week told Xconomy that he expects venture capital deals will continue to cluster along the East and West coasts, with a hole expanding in the Central U.S., where it is becoming increasingly difficult for technology and life sciences startups to attract venture investment.

Of particular alarm nationally is a big reduction in first-time funding deals for life sciences companies, which dropped to 153 last year, a 43 percent decline from 2006.

“Life sciences VCs are increasingly focusing on later-stage opportunities that carry less risk, from a clinical and regulatory perspective,” said Jonathan Leff, a managing director at the New York-based venture-capital firm Warburg Pincus, Bloomberg News reported. “This reflects a serious breakdown in the model that has fueled the U.S. leadership in life sciences innovation.”

Still, there are bright spots nationally that suggest that rumors of healthcare venture capital’s death have been greatly exaggerated. The sector closed out 2011 in strong fashion and posted a five-quarter high in funding and recorded solid deal activity, according to the latest quarterly report from venture capital database CB Insights.

In addition, healthcare (23 percent) grew as a percentage of all venture capital deals in the quarter after three consecutive quarters in decline, according to CB Insights.

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Brandon Glenn

By Brandon Glenn MedCity News

Brandon Glenn is the Ohio bureau chief for MedCity News.
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Mike Burkons
Mike Burkons

Minnesota has half the population of Ohio and only one major metro area (minn/st paul) while Ohio has 3. Basically the Minn/st paul region out performed all of Ohio combined in health care VC funding. It gets even worse if you subtract from the Ohio numbers the amounts that come from taxpayer’s via the 3rd Frontier, ODOD, Jumpstart, North Coast Angels and the Ohio Capital fund, I am sure the Ohio number noticeably decreases. How can this report be accurate. Minn didn’t borrow $1.4billion like Ohio did with the 3rd frontier program. Minn doesn't have a groups like Jumpstart, Bioenterprise, Nortech, Magnet who have the best and highest paid taxpayer funded experts on how create a conducive environment for cultivating entrepreneurship and startups. Is it possible that all these amazing and unaudited and unverified accomplishments all of these groups claim responsibility for would have happened without their existence. I don’t have a problem when these funds go directly into startups. I do have a problem when a taxpayer funded group like Jumpstart needs a 47 person staff and $10m budget for overhead to invest a little over $2m? Is it possible that the reason these groups won’t let any 3rd party group independently measure their impact is they are more concerned with taking credit for things they had nothing to do with so they can protect the multiple $400k+ salaries, large staffs and overhead with the taxpayer picking up the tab? The problem lies with ODOD as they control the third frontier money. They want good news so badly to make themselves and their efforts look effective that they rely on groups like Jumpstart to produce their own reports on how effective they are without verifying or auditing it. This region spends about $1m a week in the name of economic development if you add up all the state money and taxpayer funded non profit groups. Outside of the well paying jobs at these non profit groups, only a small percentage of the impact they take credit for wouldn’t have occurred if any of these groups didn’t exist. Somehow, a state with half the population and only one major market outpaced Ohio and they did it without all these non profit groups and this vibrant ecosystem these groups claim they created and wouldn’t exist without them. Mike Burkons [email protected]