Covidien Launches Venture Arm
Updated: Medical products giant Covidien (NYSE:COV) says it wants to play the venture capital game, announcing this morning that it has launched a corporate VC group to make strategic investments in startups focused on medical devices, diagnostics, and pharmaceuticals.
Covidien Ventures, which operates at Covidien’s headquarters in Mansfield, MA, appears to be in sync with the mantra of company executives, who have preached since Covidien spun out of Tyco International in June 2007 that the company would seek expansion in high-margin businesses such as advanced surgical devices. I caught wind back in the May-June timeframe that Dan Sheehan, who heads Covidien Ventures, had been making the rounds at life sciences events in the Hub. I tried to contact Sheehan months ago, but a Covidien spokesman declined my request because Sheehan was transitioning from his home in the Midwest (he was previously a general partner at Affinity Capital Management in Minneapolis) to New England.
It remains unclear how much Sheehan and Covidien Ventures have to invest in life sciences startups (yet given that Covidien generated about $10.2 billion in fiscal 2007 revenue, the VC group’s resources could be vast). The corporate venture group gives some details about its investment criteria at its new website, saying it plans to invest up to $5 million in each round of financing and seek seats on the boards of directors at the startups in which it invests. Covidien Ventures doesn’t currently list a portfolio of existing investments on its website.
In addition to Sheehan, Covidien has recruited Dave Neustaedter for the new venture arm. Neustaedter was a director of commercial strategy and advanced technologies for the Stryker Development division of medical devices powerhouse Stryker (NYSE:SYK), of Kalamazoo, MI. Joseph Graham, the third member of the VC group, was recruited from within Covidien’s corporate R&D unit. Before he joined Covidien, Graham was manager of a DNA sequencing lab at MIT’s Whitehead Institute.
Update Aug. 19: Covidien spokesman Bruce Farmer says that the company has not established an actual fund from which investments would be made, like a traditional VC would, and it has not decided on a set amount of venture investments it plans to make annually. He confirms, though, that the corporate VC group falls in line with the company’s strategy to tap outside sources for new technology. “One of the issues we had as Tyco Healthcare was that R&D was significantly under-funded,” Farmer says, “and this is a way to catch up.” He adds that the firm also pursued this goal through the acquisitions of technology assets from Portland, OR-based CardioDigital this summer and Sorbx, of Jacksonville, FL, last year.
The launch of Covidien Ventures should attract many medtech startups in search of funding to advance their experimental products to the next phase of development, says Tom Sommer, president of MassMEDIC (Massachusetts Medical Device Industry Council), a Boston-based industry group. “This is an important offering that the region’s medtech community now has at its disposal,” Sommer says.