Doubles amount of available funding

The Business Development Bank of Canada (BDC) is doubling its allocation of funding for the healthcare sector from $135 million to $270 million to meet the rapidly growing demand for new technologies aimed at containing rising costs and enhancing efficiencies and delivery times. The investment — drawn from internal resources — will support 10-12 new investments over the next three years in the areas of health information technology, mobile, diagnostics, robotics and automation technologies and health services.

Skyrocketing interest in personalized medicine was spurred by the completion of the human genome. The incorporation of information technology (IT) in decision support systems is prompting a large number of companies — including start-ups — to develop solutions to specific sectoral challenges. At the same time, however, many VC firms are abandoning the health care field to take advantage of the explosion in social media, making the field particularly fertile for BDC to make strategic investments in these areas.

"There's a reallocation away from traditional health care to health care IT. There's a boom right now in mobile applications. The focus has shifted away from heroic medicine like a magic pill to cure cancer towards tough challenges to deal with rising health care costs," says Dion Madsen, senior managing partner of the BDC Venture Capital Healthcare Fund. "There's been a thinning of the herd in VC health care. More capital is going into IT coinciding with the boom in social media. Health care funding in North America has remained steady but there's less in terms of the total."

Madsen says there's a lot of activity going on in the health care sector, resulting in a lack of capital. He acknowledges that even the doubling of the BDC Healthcare Fund is significant but insufficient to satisfy the needs of the entire community. Those technologies that can translate into other sectors are particularly attractive.

The global health care sector is estimated at $10 trillion annually and irregardless of the payer system, all are looking for ways to lower costs — an increasingly urgent imperative as health care systems struggle to meet the needs of an aging population that is increasingly less well, compounded by people living longer.

"Some of the companies were looking at are developing technologies that could be used in other areas. We put a focus on those that are developing these horizontal technologies and using them for health care. In the mobile sector, lots of interesting companies are emerging," says Madsen who was formerly founder and managing director of Physic Ventures, managing director of Unilever Technology Ventures and a partner with RBC Capital Partners' Life Sciences Venture Fund. "The risk of investing in sectors that are experiencing massive disruption is that there's always shifting sands. We don't know how it will end up. It creates a lot of market demand but also a lot of risk."

The Healthcare Fund will have a life of approximately 10 years. BDC VC will make initial investments of between $500,000 and $3 million in promising health care IT and companies and $3-5 million in health care diagnostics and biopharmaceutical firms.

"Typically, we start out investments with smaller amounts and then add to it, investing in the successful ones and harvesting those at the end," says Madsen.

BDC has allocated $1 billion to its VC?division for direct funds like the Healthcare Fund, funds of funds and strategic initiatives such as support for business accelerators.

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