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New healthcare businesses get a funding boost from Healthbox

on December 20, 2011 Source: Kauffman Foundation

Funding for the healthcare information technology sector saw robust growth in the third quarter of 2011.

According to data culled by Mercom Capital Group, venture capital funding for healthcare IT firms grew by leaps and bounds for the third quarter of 2011. The research shows that $207 million in new inflows funneled into healthcare IT companies – that’s up from $66 million in Q2. The number of deals during that timeframe exploded from six to 17, Mercom reports.

“It was the best quarter in terms of both VC funding and M&A activity in the healthcare IT sector since the first quarter of 2010," noted Raj Prabhu, managing partner at Mercom Capital Group. "It is encouraging to see that a lot of these funding rounds were early stage deals." 

That’s good news across the board for healthcare entrepreneurs. It’s no secret that the venture funding community takes a “herd” approach to investing. Once a few brave souls inject some new money into a given sector, others stampede in to stake their own claims. That’s a big part of what we’re seeing in the healthcare IT sector in Q3. One byproduct of that renewed interest in healthcare startup activity is more enthusiasm from the business accelerator community.

Such groups are formed by venture capital groups to provide seed funding and mentoring help to early-stage companies. That’s the idea behind Healthbox, “one of the first business accelerator programs in the healthcare industry to provide a platform that supports innovation among seed-stage companies,” according to the accelerator’s financial backer, Sandbox Industries.

“Healthbox is a three-month program for seed-stage companies that culminates in an Investor Day, in which participants are able to pitch to a broad group of healthcare investors, including Healthbox’s strategic partners – Blue Cross Blue Shield Venture Partners, California HealthCare Foundation, HLM Venture Partners, Merrick Ventures, Ridgeview Medical Center, Sandbox Industries and Walgreens – as well as angel and venture investors from across the country,” explains Dan Phillips, Director of Healthbox.

The initiative is poised for a January 2012 launch, with about 10 healthcare startups among the first wave of new companies to leverage Healthbox. The group will fund each company to the tune of $50,000, in exchange for a 7 percent equity stake in the company. The thinking is that healthcare startups participating in the program can raise even more cash on Investor Day, when they’ll meet face-to-face with representatives from some of the biggest names in the industry.

For now, Healthbox is targeting healthcare information technology startups. Companies chosen will share office space in downtown Chicago, where each firm will be expected to push toward the next stage of business development.

For their blood, sweat and tears, participating healthcare companies will, according to the Healthbox web site, gain access to:

  • Expert Network – An unrivaled group of industry visionaries, leading investors and established entrepreneurs will provide feedback and expertise across a broad array of healthcare disciplines.
  • Collaborative Workspace – Fellow entrepreneurs and mentors will come together in an environment that stimulates learning, knowledge sharing and collaboration.
  • Topical Forums – Business experts will lead engaging discussions on topics relevant to early-stage companies.
  • Seed Capital – The aforementioned $50,000 per team in exchange for 7 percent equity and an organized Investor Day for participants to impress investors and raise additional money

All 10 applicants have already been chosen for the January 2012 launch, but Healthbox expects another round later in 2012. For healthcare IT entrepreneurs, Healthbox is a good sign that the industry may be jelling, and that more opportunities to leverage VC capital should appear once the new year kicks into gear.

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