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More Venture Capital Dollars Flow To Health IT

Venture capitalists invested $633 million in medical software and services in 2011, a 22% increase from 2010.

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Venture capital investors poured $633 million into medical software and information services in 2011, which is the highest level of investments the sector has attracted since 2001, when $759 million was raised, according to figures from Dow Jones VentureSource.

Venture capital investors' interest in health IT has grown significantly over a three-year period, spurred on by the Obama administration's federal incentive programs, which have encouraged hospitals and physician offices to adopt electronic health records (EHRs). Additionally, increasing use of the Internet, mobile devices, and information management software at healthcare delivery organizations has fostered growing attention from the investment community.

Dow Jones' figures show that in 2009, investors placed $394 million in the health IT sector, which rose to $520 million in 2010 and increased another 22% to $633 million in 2011. There was also a 26% increase in the number of investment deals, from 68 in 2010 to 86 in 2011.

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"We are really starting to see the momentum building in this sector," Jessica Canning, global research director for Dow Jones VentureSource, told InformationWeek Healthcare. "Venture capitalists are very interested in health IT and there are a lot of high expectations in this market."

Canning also said the uptick in health IT investments mirrors the confidence venture capitalists' expressed in the latest Venture View survey, which interviewed more than 500 venture capital professionals and CEOs of venture-backed companies in the United States between November 30 and December 9, 2011. The survey, conducted by Dow Jones VentureSource and the National Venture Capital Association, showed that 61% of respondents predict investment increases in health IT in 2012.

In the fourth quarter of last year, health IT and services attracted $150 million. Among the companies that received financing during this period were Medivo, a New York-based company that raised $7 million in a Series A funding round led by Safeguard Scientifics. Founded in 2010, Medivo provides a data analytics platform that connects lab testing services with physicians and patients.

Perminova, a La Jolla, Calif.-based company that develops and markets Web-based software used in cardiovascular surgery, secured $7 million in venture capital, and goBalto, a San Francisco, Calif.-based company that develops Web-based clinical research tools, raised $5 million, which the company said will be used to enhance its Tracker software-as-a-service (SaaS) clinical trials platform that was launched in June 2011.

Although biopharmaceuticals remained the healthcare industry's most active investment area last year, with 302 deals raising $3.9 billion, this specialty saw a 6% drop in deals and flat investment compared to 2010 figures. Medical devices was a close second with 290 deals raising $3.3 billion, a year-over-year decline of 3% in deal activity and a 27% increase in investment. The healthcare services sector saw a dramatic drop in investments from $1.2 billion in 2010 to $541 million in 2011.

Overall in 2011, the health industry received $8.4 billion, which was invested in 738 deals for healthcare companies, a slight change from the previous year when the industry collected $8.3 billion for 747 deals.

The Dow Jones VentureSource quarterly survey, which focuses on investments in companies that belong to various industries, including energy, consumer Web and IT, health, and electronics and computer hardware, found that total venture capital investments slowed in the fourth quarter of 2011 compared to the third quarter. However, for the full year investors put $32.6 billion into 3,209 venture deals, a 10% increase in capital raised and 6% increase in deals from 2010.

When are emerging technologies ready for clinical use? In the new issue of InformationWeek Healthcare, find out how three promising innovations--personalized medicine, clinical analytics, and natural language processing--show the trade-offs. Download the issue now. (Free registration required.)

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