Funding Innovation Through Uncertain Times

The Healthcare Club at the Harvard Business School recently hosted the  8^th Annual Healthcare Conference.  It was a day packed with amazing and established speakers, an engaged audience of more than 650 students and professionals, and devoted Tweeters.  The conference hashtag #hbshcc11 trended in the Boston Top 10 by mid-day!

We want to highlight the venture capital panel “Funding Innovation Through Uncertain Times” because the issues discussed were highly relevant to our entrepreneurial readers.  The VC panelists were Robert Higgins, Highland Capital Partners; Neil Exter, Third Rock Ventures; Jean-Francois Formela, Atlas Ventures; Andrew Glass, Abbott Ventures; and Ed Kania, Flagship Ventures.

Here’s the good news . . .

If you’re interested in creating a health start-up, there is positive news – big pharma has the money to spend on buying small firms and start-ups and Boston is strong in healthcare compared to other locations.  Case in point, Andrew said Abbott Ventures is looking to acquire in the future – they ARE the exit.

What’s hot?  Fields like genetics are providing amazing advances and proving science never considered possible before, social gaming for healthcare is predicted to be huge, and there is a big focus on the potential growth in Asian markets.

For the panel’s favorite start-ups and one piece of advice, read past the break.

And then the bad news . . .

Even still, it was clear that the health care industry has lost its luster to VCs due to the strong arm of regulation and an inability to predictably make profits.   Negative aspects to healthcare start-ups include the lengthening process to get a drug approved and the increasing costs for development.  The bottom line – what is the possibility that industries like life sciences will make VC firms money consistently?  Meanwhile, Jean-Francois noted that there is a rebirth in tech investments, in part because of improved capital efficiency in that industry.  Healthcare investment dollars have to compete against the tech industry.

Decreased VC capital funds make start-ups exits more difficult, and it’s not a good sign when VC firms are looking to invest but can only find limited investments to seriously consider.  Andy noted that on the medical device side of investing, it’s important for them to continue looking for “white spaces” for the next big thing.

Healthcare reform both gives and takes away from VC portfolios . . .

Ed noted that healthcare reform is truly a siren call to make things more efficient.  While most VCs are supportive of the big picture, there is the worry about dodging bullets from the impact.  The worry is that investments in certain sectors will be demolished as the government focuses on one sector over another and new regulations are approved.  There will be funny winners and losers, and it’s risky to place bets.

For instance, healthcare reform is boosting the health IT industry more than any other health industry.  On the flip side, Andy said that the FDA is just not approving medical devices the same way as they did in years past, which is ultimately changing the economic landscape and VC investments.

Everyone has a favorite….

Bob asked the panel what their favorite portfolio firm is now. Neil said Bluebird Bio, a gene therapy product.  Ed said ModeRNA Therapeutics , which focuses on stem cells.  Andy described a firm that creates a surgical device of coils to treat COPD.

One piece of advice to entrepreneurs and budding VCs is . . .

Network, network, network!  Jean-Francois spoke first, and the panel agreed.  While it’s crucial to understanding the overall ecosystem, both VCs and entrepreneurs, networking in the entrepreneur space is more important than the VC space.   VCs are actually unpredictable hirers, so it’s better to gain an understanding of the new ventures and the entrepreneurs running them.

We were excited to hear this advice because it is key to the goal of careinnovators – to support entrepreneurs and find ways for them to network with each other.  This website is one way to highlight health entrepreneurs, but our networking events are an even better way to shake hands and see the exciting ventures being created in Boston.

For other great event recaps, check out these sites:

The Human Side of Hospitals – “HIV Preferable to Diabetes” by Katherine Scott

MedHealth World – “WellPoint CEO Addresses Health Quality, Affordability and Healthcare Reform” by Dr. Mary Cronin

The Harbus – “HBS Healthcare Conference” by Dan Monahan

Were you at this conference? Share your thoughts!