Next Things First


Wake Up Call for Health Care Venture Investors by Rob Coppedge
October 4, 2008, 6:03 pm
Filed under: economy, venture capital | Tags: ,
Growth in health care spending has consistently outpaced GDP growth since the 1960s. In particular, it has substantially outpaced GDP growth during recessionary periods.

Growth in health care spending has consistently outpaced GDP growth since the 1960s. In particular, it has substantially outpaced GDP growth during recessionary periods.

The turmoil in the financial markets has
many investors cautiously waiting for the worst of  the
storm to pass. There is little argument that the
economy is moving into a protracted recession
and investors need to manage personal and
institutional portfolios accordingly.

In markets like these, it is important to insulate portfolios by identifying and investing in recession resistant industry sectors.  Based on historical analysis  and using common sense about the macro trends driving the market today, health care investing looks like a good bet.

While not all health care industry sectors

will benefit from growth in spending, technology enabled services companies are well positioned to thrive in this market environment.

Ironically, these sorts of companies have had an extremely difficult time raising capital recently.

You will see us write regularly about the “capital gap” in the venture capital market – which has left many early stage companies (especially those outside of traditional VC geographies and industry segments) high and dry. With the crisis on Wall Street settling in heavily across the rest of the country, this problem should only get worse.

The WSJ writes this week about entrepreneurs “scrambling” for financing:

Small businesses are turning to angel investors, suppliers and personal credit cards as the financial crisis spreads to Main Street and access to commercial bank loans becomes more restricted…

It is unclear how many commercial banks aren’t writing new small business loans. But reports from across the U.S. suggest that small businesses are chasing alternative financing more vigorously than a few weeks ago.

Many health care entrepreneurs in the sectors we follow, beleaguered by trying to raise money from VCs and angels who don’t “get” health care, hope they can turn the economic crisis to their advantage.

It is questionable if institutional investors will be able to adjust their investment programs to take advantage of the opportunity – but for savvy VCs, there is a deep pool of extremely interesting early stage companies looking for capital now. But only if we look beyond the tired business health care business models of previous cycles and take chances on new managers, perhaps – gasp – even those coming from outside the sector.

Posted by RobC

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