Bleak outlook for safe(r) investment?

At the Musculoskeletal New Ventures Conference this week, hosted by the Memphis Bioworks Foundation and MB Venture Parters , a roundtable discussion was held including principals from EDF Ventures, the Vertical Group, and Thomas McNerny & Partners. The conclusion?  Investment looks bad for healthcare startups (Outlook Bleak for Investment in Health Care Startups).

With the credit crunch squeezing available money for investment, so the argument goes, money will preferentially flow to the later stage and well established medical technology companies, leaving startups struggling to finance new development.

I have no argument with this as a general assessment of the likely trend.  

However, with demands for investment to be in industries where the returns are more assured (e.g., healthcare) and in markets where there are more promising prospects for commercialization, I would argue that it is shortsighted if significant amounts of investment are moved downstream toward later stage companies, where the investment dollar will buy a decreasing share of the startup’s equity.  The real onus here is that, especially when available investment is limited, the investment should be made more carefully in ventures, with an eye to focusing on the really key criteria:

 

  • Does the venture have the proprietary position and technical expertise necessary to develop and commercialize products with competitive advantage?
  • Has the venture’s technology platform been judged against the full spectrum of competitive possibility (drugs, devices, biomaterials, biotech, hybrids, etc.)?
  • Does management have a track record of successful commercialization?

 

We have seen a real burst of new company formation over the last six months.  Yes, this precedes the recent credit crunch that has pounded the finance world, but one must keep in mind that the market for new investment in early-to-mid 2008 was not exactly robust anyway, so the fact that these companies have formed despite the (nearly) recessed market is testimony to someone’s confidence in them (if only the 3F’s: friends, family and fools).

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