Startups, Health IT

Corporate venture capital can no longer be “dumb money”

Corporate venture capitalists are not only pumping more money to spur innovation, but they are going beyond traditional comfort zones.

money

Corporate venture capitalists have long been considered second class citizens compared to their traditional VC counterparts.

No more.

A new report concludes that corporate VC activity in healthcare is not only rising in terms of quantity, but the type of the investors participating and their focus show a qualitative shift in how they spur innovation.

The report, based on a meeting at Health Evolution Summit (HES) and a survey of its Corporate Venture Action Group, shows that CVCs are creating dedicated funds from which to invest. This is a new trend compared with the more conventional practice of investing deal by deal from the corporation’s balance sheet.

About 61 percent of CVCs responding to the HES survey have been formed since 2008 and 27 percent were formed in the past two years, the report found. A whopping 95 percent of them “reported teams that included prior venture capital experience or combinations of both health care operations and investment
track records,” per the report, which was developed by Lisa Suennen, of Venture Valkyrie and the Health Evolution Summit.

The Corporate Venture Action Group and the survey saw participation from several CVCs including Google Venture, Cerner Ventures, GE Ventures, Johnson & Johnson, Hearst Health Ventures, New York Presbyterian Hospital and many others.

Early stage companies appear to be a favorite among these CVCs, per the graphic from the report.

HES report

Both the survey results and the discussion at the HES meeting show that irrespective of primary sector of business, CVC’s main area of investment interest lay in new and emerging technology. More specifically, the interest lay at the intersection of health IT and digital health with services, medtech and personalized medicine.

“This is an evolution from earlier days in the health care strategic investment
world where the primary investment focus was on businesses that were directly in line with the current core business focus: payers invested in payer start-ups, pharmaceutical companies in new molecules,” the report noted.

Needless to say that the above development will be music to the ears of digital health and health IT entrepreneurs because it widens the pool of potential investors.

What is still common between the old and the new CVC world order despite declarations of wanting to spur innovation, is the acute focus on money. Of those responding to the HES survey 42 percent reported financial returns being the primary goal of their venture strategy compared with 19 percent who pointed to innovation.

The focus on returns notwithstanding, there is a general sense that corporate venture capital can provide great value to the healthcare innovation ecosystem.

“Corporate venture can’t be the dumb money anymore…or else, when it gets tough, we won’t be around to provide the strategic value we promised.” said the report quoting Robert Coppedge, president, Direct Health Solutions, Cambia Health Solutions, an Oregon based healthcare company.

Photo: Big Stock Photo