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Health IT Still Venture Capital Sweetheart

Companies that manage health information and data raised 75% more capital than Q1 last year, in stark contrast to U.S. companies' overall drop of 18%, says Dow Jones VentureSource.

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Health IT companies raised $102 million for 18 deals in the first quarter of this year, a 75% increase in capital and one more deal than was completed during the same period in 2011, according to Dow Jones VentureSource.

The latest venture capital investment figures for health IT are in stark contrast to the overall investment picture in which U.S.-based companies raised $6.3 billion through 717 venture capital deals during the first quarter of 2012, an 18% decline in capital and a 9% decline in deals when compared with the same period last year.

"Medical software and information services are one of the very few bright spots in venture investments this quarter," Jessica Canning, global research director for Dow Jones VentureSource, told InformationWeek Healthcare. "There are so many opportunities in this area and so many new companies are focusing on different segments of the healthcare industry."

Now that more clinical data has been computerized, thanks to federal incentive programs that have spurred electronic medical records, venture investors are eying companies that not only capture clinical data, but also provide services that promote care coordination.

[ For more background on e-prescribing tools, see 6 E-Prescribing Vendors To Watch. ]

One of the largest health IT deals occurred in March when Kinnser Software, Inc., received a $40 million investment from Insight Venture Partners. Kinnser Software is an Austin, Texas-based company that offers three healthcare products. The Agency Manager product is a point of care, administration, and billing platform. The Physician Access tool allows home health agencies to collaborate more easily with participating physicians who can send referrals and sign orders electronically. The tool also provides online Care Plan Oversight (CPO) time tracking. Finally, the Therapy Manager platform helps clinicians collaborate and share patient information online.

In April, Good Start Genetics closed a $14 million Series B stock financing deal led by OrbiMed Advisors, Safeguard Scientifics, Inc., and SV Life Sciences. Good Start Genetics, a Cambridge, Mass.-based company, offers a proprietary next-generation sequencing (NGS) platform that is used for routine genetic carrier screening. Using NGS, Good Start evaluates patient DNA samples to detect both common and novel disease-causing mutations associated with recessive genetic disorders.

In February, PerfectServe, Inc., closed a $10.9 million deal led by PJC Capital LLC, the private equity arm of Minneapolis-based investment banking firm, Piper Jaffray. PerfectServe is in Knoxville, Tenn., and sells a clinical communication platform that lets doctors access and organize relevant clinical information.

Also in February, TigerText, Inc., a Santa Monica, Calif.-based company that provides secure mobile messaging for healthcare providers, raised $8.2 million in a second round of financing, led by Easton Capital and New Science Venture.

In the healthcare market overall, the first quarter saw healthcare companies raise $1.5 billion for 165 deals, an 18% decline in investment and a 9% decline in deals. Within healthcare, the biopharmaceuticals sector saw the most significant decline as 53 deals raised $523 million, a 31% drop in deals and 46% decline in capital raised.

Also during the first quarter, medical device companies raised $748 million for 83 deals, a 2% decline in investment and 14% increase in deals. Investors favored later-stage rounds, with more than half (51%) of the deals going to companies raising later-stage or restart rounds.

Companies that offered healthcare services increased their funding in the first quarter. Venture capitalists closed 11 deals worth $170 million that went to healthcare services companies. That represents a 75% increase compared with the same quarter last year when $97 million was raised.

The 2012 InformationWeek Healthcare IT Priorities Survey finds that grabbing federal incentive dollars and meeting pay-for-performance mandates are the top issues facing IT execs. Find out more in the new, all-digital Time To Deliver issue of InformationWeek Healthcare. (Free registration required.)

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