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Analysis

VC Healthcare Startup Investments Hit $131B in 2018

By Jack O'Brien  
   November 11, 2019

The rising trend of domestic venture capital investments contributed to M&A activity increasing 14% from 2017 to 2018.

Venture capital investments in U.S.–based healthcare startups totaled nearly $131 billion in 2018, according to a Sage Growth Partners survey released Monday morning.

The rising trend of domestic venture capital investments contributed to M&A activity increasing by more than 14% from 2017 to 2018.

M&A activity has consistently risen in several segments of the healthcare industry in recent years, including pharmaceuticals, insurers, and provider organizations.

Investors surveyed by Sage Growth Partners indicated that they prefer business opportunities in a fragmented market like healthcare, stating that goals include growing a differentiated product in a market with a smaller cap while also working with a "proven team." 

Healthcare CEOs responded that credibility was the biggest concern for them, with 60% reporting that having investors with "an excellent track record of success" was more important than the terms of the deal. 

Related: How a VC Fund Positions Its Healthcare Portfolio for Sales to Strategics

Where venture capitalists and healthcare executives differed was in terms of expectations for the partnership going forward.

Investors listed providing board leadership and recruiting senior management as top benefits to investing in healthcare companies, while CEOs listed market credibility and market expertise as the top benefits to partnerships. CEOs also said that it is more advantageous to work with an investment firm that is "respected" than to work with a firm that is "renowned."

Both investors and executives agreed that investments can provide companies with customer networking opportunities, subject matter experts, and growth acceleration. 

Related: Healthcare Startups Raised $1.5 Billion in March

Dan D'Orazio, CEO of Sage Growth Partners, said venture capital has flourished in healthcare because of the industry's widespread inefficiencies and mandates to drive down costs while improving health outcomes.

"It's not surprising that investors and CEOs don't completely see eye to eye on the perceived benefits of venture capital investment," D'Orazio said in a statement. "However, they will have to find a way to successfully overlap their needs to benefit from the most valuable resource in their arsenal – the people."

Related: One Healthcare Startup at a Time, This Venture Capitalist Wants to Harness the Investing Power of Women

Jack O'Brien is the finance editor at HealthLeaders, a Simplify Compliance brand.


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