Venture capital investments in Midwest health sciences companies ballooned during the first half of 2016, both in terms of deal flow and dollar value.
Investors collectively put $1.04 billion into 218 deals involving Midwest-based health sciences companies between January and June, according to Cleveland-based BioEnterprise. That’s the largest amount and highest deal flow since BioEnterprise started tracking data in 2009. For comparison, investors put $507.8 million into 144 deals during the first half of 2015.
In Michigan, venture capital investors supported 15 deals with $116.4 million during the first half of 2016, which compares to seven deals for $15.2 million in the same period a year earlier.
The deal flow and investment value “puts the Midwest in a great position,” said BioEnterprise President and CEO Aram Nerpouni.
Nerpouni attributes the strong showing to a greater awareness of investment opportunities in health sciences in the Midwest among major venture capital funds located on the East Coast and West Coast, validating the research and development work occurring regionally. The Midwest is no longer a “flyover” region for venture capital investors nationally and also “is becoming a stayover kind of region as well,” Nerpouni said.
“The Midwest continues to grow in the esteem of national investors. Everyone’s paying attention and putting money to work here,” he said. “There’s just a really consistent churn of innovation and commercialization happening in the Midwest.”
Illinois was the leading Midwest state in the first half in terms of investment value with $260.8 million put into 22 deals. Minnesota had the greatest deal flow with 61 investments for $226.3 million.
Part of the growth in the value of venture capital investments comes from maturing health sciences companies that formed years ago and are now requiring larger, later-stage investment rounds as they move through their development cycle, Nerpouni said. Just as with Michigan, many states a decade or more ago began working to build startup activity in the health sciences sector to diversify their economies.
“You’re going to see in the Midwest overall a kind of a consistent build in terms of the number of companies getting funding and the total dollars coming in. So there’s pressure over time working in our favor,” said Nerpouni, who sees the growth building on itself.
“The more that money pays attention to what’s going on to us as a region, we all have a greater opportunity to win in this system,” he said.
Individual sectors within the health sciences field had the largest number of deals. Companies involved in health care I.T., software and services development led the way with $538 million in investments, followed by biotech and pharmaceutical companies at $280 million, then medical devices at $226 million.
The diversity of deals — particularly the growth in investments in I.T., and software and services — bodes well should one sector begin to falter or fall out of favor with investors, Nerpouni said.
“If one cycle is humming and another one is not, we’re not dependent on one of those cylinders. We’re taking advantage of the whole machine,” he said.
In West Michigan, venture capital investments in health sciences companies in the first half included:
• $350,000 in late-stage capital for Grand Rapids-based Grand River Aseptic Manufacturing Inc., a contract producer of sterile injectable products for the pharmaceutical industry.
• $580,000 in angel money for Innovative Cardiovascular Solutions LLC, a Kalamazoo-based company developing a medical device to protect patients against strokes during heart procedures.
• $590,000 in angel investment for Holland-based Shoulder Innovations LLC, which develops orthopedic medical devices for injured and damaged shoulders.
Michigan health sciences VC investing
Here’s a look at deal flow and the value of health sciences venture capital invested in Michigan during the first half of 2016, compared to prior years:
Year Deals Value
2016 15 $116.4 million
2015 7 $15.2 million
2014 8 $113.9 million
2013 6 $37.9 million
2012 9 $55.9 million
SOURCE: BioEnterprise, mid-year Midwest Healthcare Growth Capital Report