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How is Venture Capital Involved in the Healthcare Sector?

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Dietary ingredients are required to be registered with the FDA, but the process of registration can be complicated. What should companies keep in mind?

Venture capital has occupied an important role in the US healthcare system, particularly as hospitals rely upon the capital to develop and test new technologies. The growth of venture capital-backed companies has allowed for hundreds of startups developing health technologies to thrive. As venture capital businesses become integrated into hospitals and the healthcare system at large, it becomes important to understand the critical role venture capital plays in health systems.

Creating Revenue Streams

Venture capital businesses allow hospitals to “create new revenue streams,” according to Neil Wyant, Managing Director of UH Ventures. What this means is that hospitals can invest in “internal ventures,” or internal ideas and resources, to establish new businesses. These business opportunities can range anywhere from specialty pharmacy to home care. Depending on the estimated value of the business, venture capital may bring outside resources to help with the development process. 

Venture capital businesses do not always rely on internal ventures; however—in certain cases, they may instead seek outside ventures. Neil, an early stage investor, added that he looks for outside opportunities to invest which he can add “strategic value” to. This may mean helping an outside company as a customer, clinical trial partner, or pilot site. This allows hospital investors to speed up the growth of the company because they have unique insights as customers.

Finding your Hospital Venture Capital

One of the primary challenges that investors must deal with is finding an internal champion that will allow them to develop strong connections with clinicians and hospital executives. The most efficient way to find a hospital venture capital is to begin by finding an internal champion. An internal champion is a person within the organization who will vouch for the company or business venture in question. Internal champions can coordinate meetings with busy executives or physicians who may otherwise not take an interest in the opportunity or company being promoted. 

Investors will often turn to an outside company for help if they cannot find an internal champion. Because an outside company is not likely to have internal connections that prove useful, this is not ideal. It is preferable for investors to find their own internal champion within the hospital. To do so, they must often sift through and qualify opportunities that internal champions propose to them.

How Should Physicians Gain Venture Capital?

Gaining venture capital for a product or technology can be broken down into three main components. Physicians should first get in contact with a venture capital firm and ensure that their intellectual property is protected. Once they have done this, the investor will then obtain venture disclosure for the idea and figure out how best to protect it, according to one investor. The final steps involve figuring out the potential market value, determining the commercialization staff, and qualifying the idea. 

The entire process of getting venture capital and developing a business around a new idea can be aided by turning to an early stage investor such as UH Ventures. Consulting with a lawyer may also be a good idea, especially with negotiating a deal right for your company.

If you have any other questions about how to communicate with the FDA or how your past and/or current FDA communications affect you and your business goals, reach out to me on Twitter, LinkedIn, or send me a message here.

I also host a podcast called DarshanTalks, a show that discusses newsworthy FDA issues and how they apply to bringing a product to market – and keeping it there. From patient centricity in clinical trials to the government shutdown to CRISPR and bioethics to why big data is doomed to fail in healthcare, we’ve got quite the list of topics to review! Listen to the podcast on Google Podcasts or on Apple Podcasts.

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