Venture capital flows to Midwest life sciences at record rate

30 Jul Venture capital flows to Midwest life sciences at record rate

Anxious to find out how the Midwest has been faring on the VC funding front, I went to a focused source on both the Midwest and the life sciences sector: BioEnterprise. This organization is based in Cleveland and is dedicated to the growth of bioscience companies.
BioEnterprise has gone to great effort to compile data and track Midwest healthcare-related VC trends from a variety of sources. Its definition of the Midwest is a little more liberal than I would use and includes western Pennsylvania, Kentucky, Kansas, and West Virginia. Even if we were to leave out these four states, the results would be very impressive.
According to BioEnterprise President Baiju Shah, the Midwest (as defined above) reported a record $742 million in VC funding in 64 companies (or an average funding of $11.6 million per company) for the first half of 2007. This level of funding compares with $286.6 million raised in 2006, or a spectacular growth of 159 percent.
As the average funding per company during the first part of 2006 was only $5.8 million, the level of funding per company in 2007 was also substantially higher.
This trend augurs well for the Midwest. Like the PricewaterhouseCoopers MoneyTree report, BioEnterprise breaks this funding into three areas: biopharmaceuticals (drugs), medical devices, and healthcare software and service companies.
The lion’s share of funding (62 percent or $462 million) went into biopharmaceuticals. About 20 percent (or $148 million) of the funding went to medical devices and the remaining 18 percent (or $132 million) went into the healthcare software and services companies.
The breakdown of life sciences VC funding by state is always of interest. The dark horse (Ohio) led the way with $244.3 million for the period followed by strong results from Minnesota ($126 million) and Indiana ($117.8 million).
While these results are surprisingly good and demonstrated a lot of investor interest in Midwest companies, not all the news was good.
Illinois ranked No. 6 for the period with $42.5 million, which was less than half of what was raised in 2006 during the first six months. Furthermore, three states (Iowa, Kansas, and West Virginia) showed $0 invested in their companies during the first six months.
Let’s take a look at the funding by state in greater detail:
Midwest Healthcare Venture Investment First Half 2007 ($ millions)

Source: www.BioEnterprise.com
Another important perspective on these VC results for the first half is the number of deals completed and average funding size for each deal. Let’s take yet another look:
Midwest Healthcare VC Funding First Half 2007 – Deal Flow

Source: www.bioenterprise.com
Note: Three states reported no funding and as a result were not included in the analysis above.
Ohio took first prize once again. Not only did it have the most amount of VC funding but it had the most number of deals and a phenomenal growth in deal amount versus 2006.
Indiana showed the highest amount of average funding per deal and an equally monumental growth over deal size from 2006.
Western Pennsylvania, Wisconsin, and Indiana have averaged about a deal per month in 2007 and are ahead of their deal flow from 2006 in numbers of deals and amount of money per deal. Illinois has definitely dropped in the number of deals done in 2007.
Finally, let’s take a look at the leading deals completed in the first half of 2007:
Leading Midwest Healthcare Companies Funded by VC’s – First Half 2007

Source: www.bioenterprise.com
Considering that none of these companies are publicly traded and for some this was their first round of funding, these results represented outstanding levels of funding for Midwest companies. This is an encouraging trend.
Furthermore, there was investment into Midwest companies by major east and west coast VCs such as Polaris Ventures, Burrill & Co., MPM, NEA, Orbimed, Perseus-Soros Funds, Thomas Weisel Healthcare Ventures, Interest Partners, and Domain Partners. These are premier names in the VC world that are heretofore rarely seen in the Midwest.
Even some of the Big Pharma venture funds participated such as the Johnson & Johnson. This is finally some recognition.
Tough IPO market continues
The above trend is even more notable when you take into account the dearth of IPOs during 2007.
In the entire U.S., there were only 11 life sciences IPOs during the first half of 2007.
They raised $933.3 million (or about $85 million per company). Four IPOs in the biotech space raised $224 million (or $56 million a piece). I don’t think any of these IPOs took place in the Midwest, which makes the above level of funding even more extraordinary.
While it’s only the halfway point in 2007, these stellar VC results demonstrate that great science in the Midwest is getting both recognized and funded on a national level. See you soon!
Previous articles by Michael Rosen
• Michael Rosen: Nano prominence: Midwest doesn’t take back seat to coasts
• Michael Rosen: Midwest life science stocks kept sizzling in Q2
• Michael Rosen: The Right Brain: A neurological solution to the flattening world
• Michael Rosen: The state of global biotech: An Ernst & Young perspective
• Michael Rosen: Brazilian bio-industry should impress American investors