The healthcare sector can often benefit from external support, which opens up the topic of external funding. Venture capital (VC) is one way to generate funding but is this the way forward for the healthcare sector?
Venture capital is a form of financing (private equity) that is offered to small or start-up firms that are considered to have potential for great growth. Alternatively, the company may have demonstrated a good level of growth already and can improve with financing from external funding sources or firms.
Developing businesses in all types of sectors can gain from venture capital support, and this is true for the healthcare sector. The research and development costs associated with the healthcare sector are huge, which means significant funding from venture capitalists will be of particular benefit in this industry.
Machine readable data is the way forward
A major benefit that is driving interest from the venture capital sector towards the healthcare sector is machine readable data. There is expected to be a massive revolution in the way healthcare is provided, and venture capitalists that get in as early adopters or backers are more likely to receive significant returns.
There are many risks involved with venture capital being brought in to the healthcare sector. Healthcare startups may find that they are pushed into an early launch when they are not ready, they may find that they lose their flexibility due to the requirements of the VC and the initial founders of the company may find that their return is diluted thanks to the involvement of the funding investors.
With respect to what type of emerging companies can prosper from large external funding, the following types are receptive to this style of funding:
- New firms specializing in digital healthcare products and technologies
- Healthcare startups that specialize in new drug treatments
- Biotech organizations
It is inevitable that some companies will do better than others in the healthcare sector, which is true for any industry. Investors are looking for a return so a new firm operating in an area with larger profit margins will be more attractive than an alternative option that offers a low margin of profit.
There is also a lot to be said for partnering with the right venture capitalist. Choosing a venture capital offer that provides expertise and experience is crucial, with Hiruy Amanuel being a great example of the kind of professional individual that startups should be looking for. With a strong track record since setting up A.J. Ventures in 2013, emerging organizations should be looking for support from managers of this caliber and expertise.
Examples of healthcare startups that have performed well after support from VCs and have enjoyed a notable “exit” include:
- Seragon Pharmaceuticals
- SAGE Therapeutics
- Kite Pharma
- Ocular Therapeutix
- Flexion Therapeutics
Given the sums of money involved with healthcare development, additional funding is always likely to be of interest. If the move is suitable for all parties, startups in the healthcare sector can greatly benefit from the involvement of venture capital.
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