Health care gets a shot in the arm from VCs

Businesses in the health-care and medical devices fields received the most venture capital funding in the first half of 2006.

According to a report released Wednesday by the University of New Hampshire’s Center for Venture Research, funding in the health-care services/medical equipment sector increased by 15 percent to $12.5 billion over the first and second quarters of 2006.

Health care represented 27 percent of total angel investment activity for the period, followed by software at 18 percent.

While angel investors funded 24,500 ventures, representing a 6 percent decrease compared to the first half of 2005, the actual number of investors in the first two quarters of 2006 rose to 130,000 — a 3 percent increase over the same period in 2005.

“These trends indicate that while the total dollar size of the market and the number of investors were comparable to Q1-Q2 2005, this increase is offset by the slight decline in the number of investments,” said Jeffrey Sohl, director of the Center for Venture Research. “Reflecting this trend is the increase in the average deal size by 22 percent over the first half of 2005.”

Sohl also said that the diversification happening in the angel market was a sign of a “robust investment pattern” and could spell opportunities for later stage institutional investors.

Other trends for the first six months of 2006 include:

• Biotech, IT services, media and retail each represented about 10 percent of angel investing dollars
• High-tech investments were about 4 percent
• Angels investments represent 40 percent of funding of seed and start-up capital in the United States.
• Post-seed/start-up investments by angels was 45 percent nationally.
• New, first sequence investments represent 66 percent angel funding nationally, indicating that some of post-seed investing is in new deals.

“This shift in investment strategies toward post-seed investments reduces the proportional amount of seed and start-up capital. This restructuring of the angel market has in turn resulted in fewer dollars available for seed investments, thus exacerbating the capital gap for seed and start-up capital in the United States,” Sohl said. — CINDY KIBBE