VCs Lukewarm To Health IT - InformationWeek

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4/21/2010
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VCs Lukewarm To Health IT

The HIT sector has pulled in 20% less in venture capital funding year-over-year.

Despite an overall 12 percent hike in venture capital investments for the first quarter of 2010, healthcare IT investments suffered a 20 percent drop from $1.5 billion plunked into 130 deals during the first quarter of 2009 to $1.2 billion for 141 deals during the same period in 2010.

Healthcare sector investments include companies that sell medical devices and equipment, as well as software and information services.

According to Dow Jones VentureSource, there were 62 deals in the medical device and equipment segment in the first quarter of 2010 versus 47 deals during the same period in 2009. Yet while deal numbers were up, there was a 23 percent drop in capital raised moving from $568 million in the first quarter of 2009 to $439 million during the same period in 2010.

"The decline in healthcare investment was driven by changes in how venture [investors] are funding companies and where companies are getting funding. Many investors are choosing to sustain companies with smaller rounds rather than larger amounts so there were more deals, but they are smaller because investors are still cautious about capital intensive projects such as healthcare," said Jessica Pascucci, research associate with Dow Jones VentureSource.

In the medical software and information services segment, there were 17 deals totaling $69 million in the first quarter of 2009 compared with 8 deals totaling $53 million during the same period in 2010, a 77 percent drop in capital raise.

Venture capital investing remained largely in the doldrums in the first quarter, although there were a few signs that a weak turnaround may be developing. A few bright spots were visible, particularly in clean technologies, according to two VC reports.

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