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Print Edition StoriesFriday, October 23, 2009
Consumer goods investment up, but healthcare dominates Q3 VC interest
By Galen Moore
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MHT's Efrain Viscarolasaga: Tech companies may have to wait for stimulus funds
As venture capital activity continues its slide back to 1997 investment levels — around $20 billion a year — numbers published last week did contain a single bright point.
Nationally, and in New England, the consumer goods sector was the only industry category to realize a gain over the year-ago period.
Consumer goods startups — historically shunned by VCs for their high distribution costs — took in $206.8 million nationally, according to Dow Jones VentureSource. In New England, startups in the sector raised $31.6 million, compared with $22.7 million in the year-ago period. It was a small slice of the VC pie in the quarter, but it was a clear indication that investors are looking for opportunities in the sector.
In the third quarter, the lion’s share of the regional investment in consumer goods went to MooBella Inc., a Taunton-based company that received $18 million for an on-demand ice cream machine. Nationally, the largest publicly reported deal was California-based Tesla Motors Inc., which got $82.5 million for its electric car.
MooBella and Tesla’s venture rounds came after Waltham-based Polaris Venture Partners announced in June a $9 million investment in Living Proof Inc., a beauty products company it helped found two years ago with scientists at the Massachusetts Institute of Technology.
Meanwhile, Flybridge Capital Partners is close to an investment in the consumer-branded natural products business of Cambridge-based Lighter Living Inc. According to Michael Greeley, a general partner at the Back Bay firm, the investment is not yet complete. He declined to comment further.
Interest in the sector may be heating up as industry giants look to venture-backed companies as potential acquisition targets or strategic investments, said Bryan Pearce, an Ernst and Young analyst. Pearce met with The Procter & Gamble Co. (NYSE: PG) this week to discuss the company’s strategy with regard to venture-backed innovation.
“A lot of these big consumer-brands companies are not only looking at new products, but they’re also looking at how they access technologies like social media, which are the new waves of the future for them to access their customer,” Pearce said.
Despite the relative fundraising success among the region’s consumer goods companies, Boston-area health care startups remained most likely to get a venture dollar in the third quarter. Life sciences startups drew $225.9 million. The local information technology sector trailed health care investment for the third quarter in a row, with $136.3 million invested, according to VentureSource. Cash-hungry health care startups accounted for the five-biggest deals in the quarter.
Despite downsizing of some venture funds, deep-pocketed investors remained the most likely to do a deal, VentureSource reported. Among Boston-area investors, the top three most active in the quarter — Polaris, North Bridge Venture Partners and Sigma Partners — all have current funds worth $500 million or more.
Polaris co-founder and general partner Jon Flint said he doesn’t think a surge of VC dollars into consumer products is likely.
“Distribution will always be a hurdle that will be hard to overcome for VC investing,” Flint said. “The competitive environment is really hard because you’re up against huge consumer products companies.”
Living Proof was an exception, because by working with MIT professor Robert Langer, the company was able to come up with new science for skin and hair care in an industry where innovation had long stagnated, Flint said. Another strength: The product does not have to reach a mass market for the company to succeed. “We don’t have to be in CVS,” Flint said.
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