Venturing into healthcare

Contact: Ben Kolada

With angel investors increasing competition for early-stage capital raises and later-stage rounds dominated by more elite firms, mid-tier tech-focused VC firms may be smart to pivot their portfolios toward the emerging healthcare IT (HIT) sector. Those who do will find a growing market with much less competition for deals.

Market demand for advanced healthcare will grow as the senior population expands. According to the federal Administration on Aging, about one in eight Americans was at least 65 years old in 2009, the latest year for which data is available. However, seniors’ share of the population is expected to grow to nearly one-fifth – 19% – by 2030.

Some VC firms are starting to take note. At the HealthBeat conference, which started yesterday and ends today in San Francisco, three firms are taking a closer look at HIT investments. Morgenthaler Ventures, Norwest Venture Partners and Venrock Associates are judging pitches in two competitions with five finalists each – seed-stage-only startups and startups that have only raised up through a series A. Among the prizes for the seed-stage contestants is a $250,000 convertible bridge loan from Venrock.

These firms’ interest in healthcare IT gives some credence to the industry’s potential value, but they also prove that we’re still in the early stages of investment in HIT. For example, just four out of Norwest’s 109 active investments are in the HIT sector. For an opportunity comparison, more than 150 startups vied for one of the 10 positions the firms are judging.

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