Investors rush to healthcare

Matt Bowman · January 22, 2010 · Short URL:

For the first time on record, more venture capital went to healthcare than IT in Q4 2009

 A media company like Vator thrives on news about consumer-facing tech companies. This post, which is mostly about financials, will get far fewer views than anything we publish that has “Zynga” “Facebook” or “Google” In the headline.

That’s because consumer-facing companies are directly relevant to potentially every human being. Healthcare, on the other hand, is not particularly attention-grabbing. That’s why today’s findings from Dow Jones' VentureSource that venture capitalists spent more money in Q4 2009 on healthcare than IT--the first time that’s ever happened--could be taken as sad news for those of us in the tech media world.

Of course, it’s probably good news overall. A New York Times article this week reported that kids who spend more time consuming media via web-enabled gadgets have more problems in school and at home (which is the cause and which the effect is unclear, but they’re probably endogenous). The fact that Silicon Valley investors are spending more on healthcare solutions than IT means more money will go to solving real problems, rather than milking consumers with games and social interaction tools.

Other interesting findings from the Dow Jones VentureSource report released today:

- Investors pulled out of energy. The sector saw a 67% drop in venture dollars committed in Q4 compared to the same period last year—and that despite a slight uptick in dollars committed overall. It seems the exorbitant capital requirements of wind farms, power plants and the like have hit home--this is too costly a sector even for venture capitalists--especially now that the money flowing into the valley through VC firms is shrinking. There are still opportunities, but not enough to warrent the hype of the last few years. In fact, we could see a greentech bloodbath this year as mid-stage energy startups fail to raise follow-on rounds.

- Deal sizes shrank in 2009. The median round size in 2009 was $4.7 million, down from $6 million seen in 2008. That may reflect both a pullback in money available and a decrease in the cost of innovation (it’s a lot cheaper to get a web-based startup off the ground than it used to be).

- More deals went to older companies. Later-stage deals accounted for the largest slice of deal activity with 944 deals, roughly 39% of the total U.S. deal count for the year. The exit window is expected to bust open in 2010, and it’s not surprising that VCs would put invest their waning dollars into existing companies, to get them over the liquidity hump.

Check the full report here:

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