Venture capital investments rose in Minnesota, nationally in 2017

Money is rushing into fledgling health technology and other promising firms in Minnesota and around the country at rates not seen since the dot-com boom of 1999 to 2001.

In Minnesota, 48 early-stage companies last year received $495.1 million in venture capital, up 40 percent from the $350.9 million invested in 2016.

In only one year in the nine-year economic recovery — 2014 — has there been more venture funding in Minnesota companies since 2001. In 2001, just before the technology-led recession hit, $558 million was invested.

Nationally in 2017, annual funding to venture capital-backed companies increased 17 percent to $71.9 billion, according to MoneyTree Report from PricewaterhouseCoopers (PWC) and CB Insights. That's the most money raised since 2000.

"The size of the checks being cut is something we've never seen before,'' Tom Ciccolella, PwC's U.S. venture capital practice leader, said in a phone interview. "The venture ecosystem has changed. We're starting to see more megadeals."

More than one-third of the 2017 deals were for $100 million or more, he said.

For example, last summer Minneapolis-based Bright Health raised $160 million to fund expansion that includes selling health insurance plans to seniors who get their Medicare benefits through private insurers.

That one deal alone was nearly one-third of the total venture capital raised by 48 Minnesota companies last year.

Bright Health, started by former UnitedHealth Group executive Bob Sheehy, was launched in 2016 with $80 million from investors.

The 2017 round of $160 million in capital includes funding from new investors Greycroft, Redpoint Ventures and Cross Creek Advisors. It also included existing lead investor New Enterprise Associates, as well as Bessemer Venture Partners and Flare Capital Partners.

Institutional money from private equity firms and even huge corporations that have launched venture funds are driving the $100 million-plus deals. Many young companies are accepting additional rounds of venture capital to help them grow, rather than sell to larger concerns or sell stock through initial public offerings. The bet is that they will be worth much more after two to five years of additional operations and sales growth.

"While the figures are comparable to the dot-com era, the VC ecosystem appears healthy and driven by different dynamics," PitchBook Data CEO John Gabbert told the San Jose Mercury News last month. "Later-stage companies with strong consumer traction are commanding large rounds of financing."

So, venture capital firms are not reaping returns as fast as they once did.

More venture-backed companies are deciding to stay private. And the number of companies exiting through sales or IPs has dropped to 769 — the lowest number since 2011, according to PitchBook, a data analyst that monitors the capital-raising industry.

Minnesota typically gets about 2 percent of the allocation nationally. The state is among the top 10 or 12 venture capital recipients, but lags the megastates such as California, Texas, Massachusetts and New York.

Minnesota continues to see a lot of health care, IT, health insurance and medical technology funding.

For example, Monteris Medical of Plymouth raised $27 million last year, its second round of venture capital funding since 2014. The firm develops surgical lasers guided by MRI technology and navigational software for neurosurgeons.

And late last year, Revel Health — a software firm that works with insurers to help patients take better care of themselves — received a $17 million investment from TT Capital Partners.

Revel will use the funds this year to increase marketing efforts, further develop its technology and grow the North Loop company from 40 to 100 or so employees over the next two to three years.

CEO Jeff Fritz said last week that Revel, which has been growing sales by 35 percent annually, has hired a new chief technology officer and other talent.

"Revel is investing in the acceleration of sales and marketing efforts with participation in industry forums, digital strategy, speaking engagements and our overall online presence," Fritz said.

Insurers hire Revel to use technology to prompt people to get their checkups, cancer screenings or take at-home steps to maintain or improve an acute condition or general health.

Ciccolella and others who watch the capital-raising business said they see no reason to expect either a big increase or drop-off in venture capital-raising this year.

Neal St. Anthony has been a Star Tribune business columnist and reporter since 1984. He can be contacted at nstanthony@startribune.com.