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Where Are VCs Investing Now?

February 14th, 2012 ::

By Karen Axelton

Facebook’s recent IPO may be getting all the attention, but social media isn’t the only area where investors are putting their money. When it comes to venture capitalists, Information Week reports, VCs’ favorite place to invest in 2011 was the health IT sector. Specifically, medical software and information services attracted $633 million in VC investment in 2011–the most this sector has attracted since 2001, according to data from Dow Jones VentureSource.

DowJones data shows VC investment in health IT rose from $394 million in 2009 to $520 million in 2010. 2011 saw a 22 percent increase in dollars invested, along with a 26 percent increase in the total number of deals–from 68 in 2010 to 86 in 2011.

What’s behind the surge of interest in healthcare IT? The last three years have seen wider adoption of electronic health records, accelerated by President Obama’s federan incentives. And consumers’ and healthcare practitioners’ growing comfort with using the Internet, software and mobile devices to store, access and manage health-related data has attracted VCs’ attention.

And their interest in the health IT sector shows no sign of slowing, according to the most recent Venture View survey by Dow Jones VentureSource and the National Venture Capital Association. The poll of more than 500 venture capitalists in late 2011 found 61 percent predict investment in healthcare IT will rise in 2012.

While health IT is a rising star of healthcare VC investments, biopharmaceuticals was still the healthcare industry that got the most VC investment in 2011, with 302 deals at a total of $3.9 billion. However, compared to 2010, that figure represents a 6 percent decline in deals and flat dollar investment.

Medical devices came in second, with 290 deals in 2011 for a total of $3.3 billion. Although the number of deals declined slightly, investment dollars rose by more than 25 percent.

Where are VCs not investing? Perhaps due to uncertainty as to how healthcare reform will actually shake out, investment in healthcare services plummeted from $1.2 billion in 2010 to $541 million in 2011.

Overall, the Dow Jones VentureSource quarterly survey of VC investments in energy, consumer Web and IT, health, and electronics and computer hardware companies showed that total VC investments slowed in the last quarter of 2011, the year overall saw 3,209 deals for a total of $32.6 billion. That’s a 10 percent increase in capital raised and a 6 percent increase in the number of deals compared to 2010.

Image by Flickr user takomabibelot (Creative Commons)

The views expressed here are the author's alone and not those of Network Solutions or its partners.

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