Corporate VCs Add Value Beyond Financing to Healthcare Startups

Shannon Beeman
May 25, 2016

Strategic Investors Speaking at MGCS Panel on Healthcare VC

A decade ago, corporate venture capitalists were the odd men out in healthcare venture investment circles. Now they are playing a leading role in the financing, growth and development of healthcare startups, said a panel of strategic investors at the Michigan Growth Capital Symposium on May 18.

Entrepreneur BioMedicine Univeristy of Michigan“Previously, there was a perception that corporate investors were not welcome into investment syndicates, and there was opportunity hoarding (by private investors),” said David Neustaedter, vice president of Medtronic Ventures. “Since 2008, the tide has turned. Strategic investors now are welcome at the table, and more are involved in syndicates.”

A pullback by private VCs seeking better returns elsewhere coupled with budget cuts at the National Institutes of Health has curtailed critical funding for many healthcare startups, according to Scott Button, managing director of Venture Investors. “There are tremendous needs and opportunities in healthcare innovation that require funding,” he remarked. “Finding seed and early-stage dollars is challenging. Huge gaps are not being filled by the venture industry.”

As a result, strategic venture capital investors from large pharmaceutical, medical-device and healthcare IT corporations have stepped in to fill the financing void, and corporate venturing has doubled in the last few years. But it’s not just about the dollars, the panelists insisted. There is tremendous value-added investment by corporate VCs who take equity stakes early in the life cycle of healthcare startups. The advantages strategic investors bring include:

  • Providing a different perspective than private investors
  • Sharing sector expertise and infrastructure
  • Improving manufacturing and operations
  • Conducting due diligence and financial analysis
  • Expanding and calibrating financing opportunities
  • Fostering better board decisions and planning
  • Building strong relationships early on
  • Preparing startups for onboarding or acquisition

“We want to give science the right opportunity, so we put in adequate reserves,” said Bob Smith, senior vice president of business development for Worldwide Research and Development at Pfizer.

“It’s up to us to keep the ecosystem alive and full of potential,” remarked V. Kadir Kadhiresan, vice president of venture investments at Johnson & Johnson Innovation. “It’s naïve to think we can grow organically.”

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