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Has VC Lost Its Appetite for Risk?

This article was originally published in Start Up

Executive Summary

It's trendy to question whether the tried-and-true model of venture capital is broken. Specifically, is the economic system that relies on IPOs or acquisitions still wired to reward the risks taken by venture capitalists? But an even more worrisome concern emerged during last month's annual meeting of the National Venture Capital Association-are VCs themselves still wired to take risk?

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The medical device industry is undergoing a crisis of funding, but not of confidence, according to a panel of investors convened at Windhover's recent medtech conference, In3 West,. The conference panel sought to explore how the medical device investment community is operating in these troubled times, how they will invest going forward, and how they will support their companies if things don't improve. We were especially curious to know if the funding challenges that start-ups face are really due to the overall dire economy, or if that dark cloud merely masks changing fundamentals in the medical device industry that are making it more difficult for companies to find funding, gain FDA approval, and enjoy a healthy exit. Our panel weighs in on the matter.

A New Chapter for Device VCs

This article first appeared in the March 2009 issue of Start-Up. The current economic crisis is hard on everyone, including investors and start-ups. But the news isn't all bad for medical device VCs. Those with capital will find the prices to be right in today's depressed economy. On the flip side, those venture firms without new funds or sufficient reserve capital will get penalized by declining valuations and punitive terms offered up by some new investors in their companies. Medical device companies, meanwhile, face tougher scrutiny from investors. During all this, both VCs and start-ups must answer new questions being posed by regulatory bodies, public investors, corporate acquirers, and potential customers.

Device VCs not Immune to Crisis

The difficulties on Wall Street are washing down to the private market causing medical device VCs to reconsider investment strategies and exiting routes.

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