CLEVELAND, Ohio — A new health-care investment fund that takes a “humanitarian approach with a profit flair” will test the maturity of Northeast Ohio’s medical industry.
The $5 million Medical Growth Fund gathers some of the region’s well-known health-care entrepreneurs who want to make seed-level investments in start-up companies that are close to profitability. It will focus on medical device, health IT, and health-care services businesses and provide an initial investment of up to $500,000. Each portfolio company will also get a “champion” to actively advise the company.
The group expects to do six to eight deals with its current fund and has a pair of deals in the pipeline.
With the Rise of AI, What IP Disputes in Healthcare Are Likely to Emerge?
Munck Wilson Mandala Partner Greg Howison shared his perspective on some of the legal ramifications around AI, IP, connected devices and the data they generate, in response to emailed questions.
“We’re a hybrid between an angel fund and a venture capital fund,” said Ray Dalton, chief executive at the medical equipment supplier PartsSource, who is chairman of the growth fund. He’s joined by the likes of Geoff Thrope, whose company NDI Medical last year sold a medical device to Medtronic for $42 million. BioEnterprise, the Cleveland-area biotech trade organization, will help by reviewing potential investments.
“Individually it’s hard to make a difference but with the golden rolodexes most of us have we could make the right introductions, help refine a product, get them access to capital and make a decision whether to accelerate a business,” Dalton said.
It’s a timely manuever. Seed-level investors are becoming more critical as venture funds wilt. Smaller funding organizations like the grant-making Great Lakes Innovation and Development Enterprise, (GLIDE) and the early-stage JumpStart fund have already started to favor medical-industry enterprises. For example, a $100,000 GLIDE grant in June lured the Louisiana drug startup Theravasc into the region.
Yet industry-specific funds like the Medical Growth Fund are rare, rewarding and challenging. They borrow a focused formula that works for venture capitalists, which often pick from a broader geographic area than angel investors. But when done properly the returns from focused early-stage funds are usually higher than typical angel organizations, said Allan May, chairman of Silicon Valley’s Life Science Angels, which focuses solely on biotech and medical devices, who is also on the board of the Kauffman Foundation’s Angel Capital Education Foundation.
A Personalized Approach to Medication Nonadherence
At the Abarca Forward conference earlier this year, George Van Antwerp, managing director at Deloitte, discussed how social determinants of health and a personalized member experience can improve medication adherence and health outcomes.
They key for greater returns is having investors who are from the industry, which is this case with Cleveland’s fund. But the fund will also need to shift somewhat away from the sentimentality of only supporting companies from the Cleveland area. May’s group, for example, has made the bulk of its 26 investments in dealflow-rich California. But it’s also invested in companies located in Massachusetts, Utah, Virginia and Washington.
“Either you’re an economic development fund, in which case you want to support Ohio technologies and entrepreneurs, or you’re an angel group in which case you want to get rich,” said May, who stressed the economic-development funds also see good returns. May thinks a combination of the Cleveland and Pittsburgh areas would be a perfect combination to support a focused fund.
Dalton said the fund will look at deals from outside the region, but it’s primary focus will be Northeast Ohio, which he thinks has enough dealflow to support the fund. Baiju Shah, president of BioEnterprise, said his group reviews about 170 opportunities annually. Shah hopes the fund could also attract outside companies into the region to receive the investment dollars.
Dalton said: “When we first started started talking about this, we asked: ‘Is it pure economic development project and we don’t care if we make money?’ The answer was no. It’s an investment and we have to make money. It’s a kind of venture fund that’s doing economic stimulus at the same time. We have to keep an eye on the dollars.”
[Photo courtesy of Flickr user AMagill]
