Healthcare Corporate and Debt Funding Sources

If you don’t follow Bruce Booth’s blog Life Sci VC  you should.

Booth, a biotech partner at Atlas Ventures, posted recently on both corporate funding and venture debt. While medical device startups typically think of corporate investors coming in to Series C or later stage deals, Booth wrote that “Corporate VCs are now truly ‘preferred partners’ for [Atlas’s] early stage deals.” Booth also pointed out that “Corporate VC funds have very large implied ‘assets under management’.” He estimated that the fifteen top biotech corporate investors “represent about $2.5B+ worth of ‘traditional’ venture funds by conventional measures of fund ‘size’.

Booth’s post Venture Debt: Under-Appreciated Tool for Building Biotechs teaches similarly valuable lessons. He suggest that the “the debt market in the life sciences is about 10% of the equity market,” and that:

Companies use this debt financing for a variety of things: extend visibility to reach key value inflection (e.g., completion of a clinical study); purchase expense capital equipment; strengthen their balance sheet prior to deal negotiations or IPO; or, expand the pipeline by purchasing new assets or advancing secondary programs, among other things.

If you’ve been following my blog, you know that I try to make it easy for medical device startups to identify potential sources of funding. My list of ‘healthcare venture capitalists with money‘ has been really popular. So today I put together a list of healthcare corporate and debt funding sources.

The debt funding sources are pretty straightforward – two banks and twelve speciality finance companies. For medical device companies with significant capital equipment, an equipment-based lease from your bank makes a lot of sense. More generally, I encourage you to read the following before considering venture debt:

http://www.svb.com/blogs/ojazdowski/Understanding-Venture-Debt/
http://venturebanker.tumblr.com/venturedebt
http://www.askthevc.com/wp/archives/2008/07/what-is-the-purpose-of-venture-debt-at-the-series-a-round.html
http://venturedebt.wordpress.com/2011/05/16/true-economic-impact-of-venture-debt/
http://www.adventurista.com/2009/01/true-cost-of-venture-debt.html

Corporate funding sources fall into two categories: product companies (device and pharma) and provider funds (hospital systems). Like traditional venture funds, corporate venture funds want to make a good return on their investments. Unlike traditional venture funds, corporate venture funds typically also want to make investments that support their broader corporate mission. Well-structured deals can align the incentives of the corporate investors with those of the venture investors and management. I encourage you to read the following before considering corporate strategic investors:

http://bijansabet.com/post/831552371/should-a-startup-bring-on-a-strategic-investor (make sure to read the comments too)
http://informationarbitrage.com/post/2165834986/is-it-wise-to-take-strategic-investment-as-a-start-up
http://www.askthevc.com/wp/archives/2008/08/what-are-the-pros-and-cons-of-investment-from-a-strategic-entity.html
http://www.feld.com/wp/archives/2006/04/right-of-first-refusal.html

Still interested in venture debt or corporate investors? Check out my list here: Healthcare Venture Debt and Corporate Funding Sources 2012.