Minnesota venture capital take in first half nearly topped last year's entire funding

Minnesota companies, thanks partly to a huge take by digital-health firm Bright Health, took in $291.2 million in venture capital from 14 transactions during the first half of 2017.

By comparison, there were 23 venture capital deals in all of 2016, that raised $339.4 million.

"The second quarter was the second biggest quarter since 2008 and the sixth largest for Minnesota companies since the "Money Tree" report started in 1995," said Mark Scholtes, a veteran audit partner in the Minneapolis office of PricewaterhouseCoopers, which works on the report with data-analysis firm CB Insights.

"This was an excellent comeback quarter," Scholtes said. "The first quarter of this year and the second half of 2016 were below average.

The first six-month periods of the last five years have averaged $235 million.

Nationally, young companies attracted $32.8 billion in venture capital during the first half, up 23 percent from 2016. In the second quarter ended June 30, funding of venture-backed companies raised $18.4 billion, a jump of 28 percent over 2016. The number of transactions during the period was down 4 percent to 1,152. The trend has been toward more $100 million-plus fundings.

Minnesota had one such "unicorn," or $100 million-plus deal.

Minneapolis-based Bright Health, a year-old insurance firm formed to take advantage of health care expansion under the Affordable Care Act of 2010, or Obamacare, raised $160 million in June to fund expansion, including health plans to seniors who receive Medicare benefits through private insurers.

Bright Health tries to hold down costs while improving patient outcomes by working with health providers in "narrow networks" that steer subscribers to certain doctors and hospitals in hopes of better care coordination.

"We decided to raise additional capital so that we can support our growth into additional markets …" CEO Bob Sheehy said last month.

Given uncertainty about the future of the under-pressure individual market, the smallest health care market and Republican efforts to repeal and replace the Affordable Care Act (ACA), Bright Health has shifted to the huge, taxpayer-financed Medicare market.

Bright Health, launched by former UnitedHealth veterans, is one of several new names in health insurance created to capitalize on ACA growth. However, several have gone out of business as Congress in recent years defunded parts of the ACA designed to increase the ranks of the insured through health care exchanges. In turn, insurers have protested, withdrawn from the exchanges or gone bust.

Meanwhile, PwC's Scholtes said the allocation of venture dollars in Minnesota included seven to internet-related concerns such as Bright Health, and five to health care firms.

Monteris Medical of Plymouth was the second-largest winner in the second quarter with $27 million, its second round of venture capital funding since 2014.

The firm develops surgical lasers guided by MRI technology and navigational software for neurosurgeons.

Monteris received clearance from the Food and Drug Administration in 2013 to market its NeuroBlate System, which allows a doctor to use a magnetic resonance imaging (MRI) system to treat brain lesions and tumors in locations previously considered inoperable.

The system of hardware, software and disposable products is used with an existing MRI system to deliver laser energy to treat tumors and lesions.

Conventus Orthopaedics, which received $24 million in funding from multiple investors in 2014, placed third in the Minnesota sweepstakes by raising $20 million in the second quarter.

Conventus is a medical device firm developing a less-invasive fixation system for traumatic fractures in the extremities, such as the wrist.

Most venture funding goes to the states of California, including Silicon Valley, the Boston area and Texas, particularly around the capitol of Austin, which are huge medical-and-technology hubs.

LogicStream Health, which helps health care organizations improve through maximizing the potential of electronic health records, raised $6 million in the second quarter.

Minnesota typically ranks 12th in venture funding.

"This is still a strong environment for entrepreneurs," said of the state's diversified economy and entrepreneurs who often leave big firms to start new companies such as Bright Health.