Report: Corporate venture capital bullish on seed stage health investments

Corporate venture investment has emerged as an important alternative to more traditional healthcare funding avenues. However, there’s still a dearth of information about their activity.

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Corporate venture capital is taking an active interest in funding early stage healthcare startups, according to a new independent research survey from MedCity News and litigation finance firm Lake Whillans.

Traditional venture capital and angel investment, after all, are no longer the primary players in funding healthcare innovation.  Corporate venture investment has emerged as an important alternative to more traditional healthcare funding avenues. However, there’s still a dearth of information about their activity.

So, with more than 1,200 respondents across three surveys – the most recent of which from the first quarter of this year – here are some top-line findings:

In both life sciences and digital health investments, late stage rounds are expected to remain stable this year and beyond. Seed round investments, on the other hand, are projected to increase, according to the survey.

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Corporate venture activity will focus more heavily on early rounds, whereas traditional venture investors will continue to focus on the later stage, more established healthcare upstarts:

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Amusingly, entrepreneurs really don’t want corporates to get involved in the board work and governance of their companies. However, they’re certainly interested in allowing corporates to lead early investments in companies – which certainly falls in line with trends.

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A somewhat odd finding from the survey was that nearly 20 percent of the respondents made no investments in the past year. This can be parsed as such: Some of the respondents are fledgling VCs and corporates that are so early in their funding cycle that they haven’t yet invested in startups. What it could mean: More private placements could come in 2016 and beyond.

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“In the context of the astonishing growth in the formation of CVC units, it’s less surprising,” said Brian Dalton, director of research at MedCity News parent company Breaking Media – citing research from CB Insights that found the number of CVC units in 2015 represented a 350 percent increase over five years ago. “We seem to be in boom times in the formation of CVC arms, and we shouldn’t be surprised that there are so many that have yet to complete an investment.”

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Indeed, nearly half the respondents said they project leading more deals in 2016 than they did last year. About 40 percent said they’ll invest in the same number of startups, and only one in ten said they’d invest in fewer. Angel and venture investors were more likely to lead more deals than corporates, the survey found.

When splitting out traditional venture investors investors and corporates, you see these differences in the life sciences:

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In digital health, it looks more like this:

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A few corporate venture firms seem to have engendered more positive perceptions from survey respondents. Johnson & Johnson Development Corporation fared best among life science entrepreneurs, whereas Comcast Ventures most impressed those in digital health.

It’s still early days for corporate venture financing – but the involvement of strategic investments in funding healthcare upstarts is clearly on the rise.

[Photo Credit: freedigitalphotos user Salvatore Vuono]