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Venture capital investment by corporations down in first quarter

Arundhati Parmar on July 04, 2012 Source: MedCityNews.com

The uncertainty in the healthcare industry – finally put to bed with the U.S. Supreme Court upholding the Affordable Care Act — may have had a negative effect on corporate venture capital activity in the first quarter.

report from CB Insights found that venture capital investment by corporations in the healthcare sector fell to $173 million in the first quarter of the year from $283 million in the fourth quarter of last year. The number of deals declined to 14 from 22 in the same period. Overall, CVCs accounted for 11 percent of total venture deals in the first quarter that amounted to $1.09 billion. The figure represents the lowest amount invested by CVCs in the last five quarters. Further, the 84 completed deals also marked the fourth consecutive quarter that corporate deal volume declined.

In terms of healthcare, the big dogs continue to be California and Massachusetts, which together accounted for 72 percent of the deal volume and 61 percent of the amount invested. Massachusetts matched California in terms of the number of deals done.

Not surprisingly, corporate venture capitalists, perhaps like their venture capital counterparts, are looking to invest in later stage companies instead of seed-stage startups who are deemed too risky. That is the opposite of the overall trend in CVC investing. There were no seed-stage deals either in the fourth quarter of the 2011 or the first quarter of this year.

Now that the Supreme Court has weighed in with its decision, some venture capitalists are expecting this to be good news for the sector.

“There will be numerous ways to develop high-quality, affordable healthcare delivery products and services that are good investment vehicles for VCs and growth equity investors,” said Sherrill Neff, a partner with Quaker Partners.

It will be interesting to see whether CVC activity picks up in the second half of the year.

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