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Minnesota start-ups flush with cash in 2007
The flow of venture capital to Minnesota and the nation was the most robust in six years. And funding for early-stage firms bodes well for the state.
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Minnesota start-ups ended 2007 on a high note, with local firms raising the most venture capital since the collapse of the Internet bubble six years ago.
For the year, the state attracted $430.2 million in venture financing, a 34 percent increase over the previous year and its best showing since 2001, according to the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association, based on data by Thomson Financial.
Venture financing this year "has been robust compared to the last few years," said Jay Hare, a partner at accounting firm PricewaterhouseCoopers' technology industry group in Minneapolis.
"To get something closer to 2001 is quite impressive."
Perhaps most important, investors were willing to fund more early-stage companies, a trend that bodes well for the state's life-science community. Industry leaders have long complained about the lack of venture capital for young start-ups.
In the fourth quarter, 18 local companies received nearly $140 million in funding, or 2 percent of the national total. Nearly half of that money, or $67.1 million, went to nine medical device firms.
One of those companies was ConcepTx Medical Inc. -- a business accelerator founded by three local medical executives -- and Acorn Cardiovascular, a New Brighton-based company that is developing a device to treat patients who have heart failure. Acorn received $22 million, the most in the quarter.
Investor interest in medical technology ran high across the country, thanks to strong innovations and robust merger-and-acquisitions and initial public offering markets, said Sherrill Neff, a founding partner with Quaker BioVentures, a Philadelphia-based venture capital firm that specializes in life sciences.
Nationally, medical device firms raised $3.9 billion in 2007, a 40 percent gain from the previous year.
Minnesota's medical device start-ups are "reasonably keeping pace" with that growth, Hare said. Local firms this year captured 6.4 percent of national medical device money, slightly down from 2006. That percentage closely follows the state's five-year average of 6.2 percent.
After years of favoring late-stage companies, venture capitalists once again are turning their attentions to early-stage start-ups. Nationally, 1,267 companies received first-time financing last year, an 8 percent jump from 2006.
Since the dot-com collapse, investors have shied away from riskier start-ups in favor of more developed and experienced companies. Minnesota, in particular, has struggled to attract early-stage funding. Industry officials have feared that the lack of funding would force promising start-ups to leave the state.
But the fourth quarter showed five companies receiving first-time start-up or seed funding. Two or three companies per quarter would be normal, Hare said.
RedBrick Health, which received $15 million, looks particularly promising, Hare said. Founded in 2006 by veterans of Definity Health, Minneapolis-based RedBrick works with large, self-insured employers and runs health-and-wellness as well as disease-management programs for its clients.
Given the presence of UnitedHealth, Red Brick's success could lead to other new health services companies, Hare said.
"Success begets success," he said.
Thomas Lee • 612-673-7744
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