Why Investing in Neglected Areas in Venture Capital Leads to Outsize Returns
By MBX Capital LLC
Oct 17, 2019
Private Equity / Venture
Oct 17, 2019
The Case for Healthcare Venture Capital
Healthcare Has Been Neglected By Early-Stage Venture Capital Firms
For LPs interested in true diversification and outperformance, we believe the majority of venture capital allocations should emphasize contrarian firms that will deliver a basket of non-consensus investments in areas that are typically overlooked.
These days, the majority of venture capital dollars flow into a small number of cities where there are high concentrations of venture capital firms. Many of these firms focus primarily on tech investing and find themselves fiercely competing amongst themselves to invest in companies that are working on similar problems, leading to higher valuations and a lower likelihood of meaningful multiples on invested capital for LPs.
Despite venture capital returns in healthcare outperforming tech returns substantially from 2012 to 2016 (see below), there are half as many firms investing in healthcare than in technology. As a result, we see an exceptional opportunity for LPs in venture capital opportunities outside of traditional tech investing. While many early-stage tech VCs invest in healthcare technology, very few invest in biopharmaceuticals, healthcare services/delivery, and medical technology – massive industries where only a small number of firms consistently invest at the earliest stages.
