By Dr. Bijan Salehizadeh
There. I said it. And I mean it.
I’m talking about healthcare venture capital — the seemingly ugly step-child of venture capital these days. But beneath that tussled appearance is a beautiful object to behold and worship.
The cold, hard facts that the haters love to deny show that healthcare venture investing has outperformed every single other category of venture investing since 2000. Looking just at the thousands of realized venture returns in the past decade, it’s easy to see that Healthcare puts IT/Internet, Software, Hardware, Consumer all to shame.
Here is the data is from the largest database of venture returns out there:
|Realized gross mean pooled IRRs for initial investment years 2000-2010
|Data as of 3/31/2000
No matter how you look at the data, healthcare outperforms. It’s true by stage at initial investment (healthcare wins at every stage from seed to expansion for the past 10 years).
And it’s true for percentage of realized exits greater than 3x and 5x in the past 10 years. Healthcare FTW — again.
Percentage of exits below 1x invested capital — healthcare has the best numbers there as well. By far.
You wouldn’t know any of this these days — when the talk in the Valley reminds me of exactly where things were 10 or 12 years ago.
Just as it was back then, I’ve heard many IT investors and VC industry watchers write off healthcare venture as being done and over. Wrong.
I’ve learned never to bet against two things:
- Demographic trends
First — There are 40 million Americans age 65 or older today. That number will grow to 80 million in the next 30 years. By any measure, that is a huge new market to be served by healthcare services, drugs, and medical technologies.
Second — The fastest-growing segment of the U.S. population over the last 10 years (and projected to be the fastest growing over the next 30 years) is people over age 100. That 100+ group has grown 40 percent in the last decade and is expected to grow by 650 percent over the next 30 years.
By comparison, the number of people in their thirties has actually shrunk by 6 percent in the last decade and is expected to remain flat at best over the next 30 years, according to the U.S. Census Bureau. If you don’t see it now, you better believe that the next 30 years will be all about caring for these people.
- Strategic acquirers who need to fill their product pipelines
The sectors with the best cash flows, best gross and net margins in the world are public pharmaceuticals, large cap biotech, and medical devices. And those are the companies who have the most to lose as patents expire and internal R&D dries up.
No, I’m not a sucker or a promoter. I’m just calling ’em as I see ’em.
Yes, the Food & Drug Administration is tougher now than ever; and yes, the costs of drug and device development are daunting.
But the pendulum will swing on those items, as it always does, and we will be left with a society where an ever-increasing percentage of our GDP is spent on healthcare and an ever-increasing percentage of our population work at health industry jobs.
I am of the firm belief that the next few decades will be all about novel and innovative health services and technologies that will transform how we age and manage our way through the dizzying healthcare system.
So, I’m officially calling out to my fellow comrades in healthcare VC: Be strong. Stand up. Be proud.
When you fell like hanging your head in shame because you’re at cocktails with a bunch of tech VCs at the Rosewood on Sand Hill Road and you can’t name the Google or Facebook of healthcare, just think of these amazing venture-backed healthcare companies — all exited in the last few years for $500M or greater:
- AGA Medical
- Conor MedSystems
Dr. Bijan Salehizadeh is a general partner with Highland Capital Partners. Bijan focuses on investments in medical device, healthcare services and healthcare information technology companies. Bijan represents Highland on the board of BÂRRX Medical, Hyperion Therapeutics, OpGen and Predictive Biosciences, and is or has been actively involved in Highland’s investments in BAROnova and Conor Medsystems (IPO; acquired by Johnson & Johnson). He can be reached at 650.687.3800 or firstname.lastname@example.org