Quitting Smoking is Good Business, Good Health, as Free & Clear Wins VC Deal of the Year

12/3/09Follow @xconomy

There haven’t been many home run venture investments in the Northwest this year, but one of the year’s biggest hits flew below most people’s radar—including mine. It basically made a lot of money by helping people quit smoking.

Seattle-based Free & Clear, the developer of a proprietary smoking cessation program, was picked last night as the “Deal of the Year” by the Evergreen Venture Capital Association, a group of 16 venture firms with a presence in the Northwest. I heard about this last night at the association’s holiday dinner party at the Four Seasons Hotel in Seattle.

Free & Clear was backed by Polaris Venture Partners, Three Arch Partners, and Kaiser Permanente Ventures, with $17 million of capital, and ended up getting acquired for $130 million in September by Waltham, MA-based Inverness Medical Innovations (NYSE: IMA). The company grew its revenue to $58 million, and had 500 employees, who all had some equity at the time of the sale, accoring to senior vice president Sean Bell. So this was the kind of return that VCs can brag about not just to the pension funds that back them—it also helps stay on the good side of elected officials that have been looking for someone to blame, including VCs, for the great financial meltdown of 2008.

“This is a great example of the success of venture capital in our community,” said Andy Dale of Buerk Dale Victor, the president of the local VC association.

But what really caught my ear was what Free & Clear did to achieve that return, and how much of an impact it could have on public health. The company uses a phone and Web-based coaching service, based on proprietary cognitive research into breaking people’s ingrained behavioral habits. This wasn’t a smoking cessation drug, or patch, or some other kind of infomercial gimmick. Apparently, the coaching works.

The average success rate for smokers who try to quit cold turkey is between 3-5 percent, but that rate climbs to 40-45 percent for users of the Free & Clear counseling service, Bell said. About 800,000 people have voluntarily enrolled in the program. Based on statistics that say smokers have shorter life expectancies than non-smokers, Free & Clear estimates that this work has helped the population add 2 million years of extra life. Now that may not show up in the quarterly financial reports, but it’s the kind of thing that can not only help investors do well, but it could save the health care system a bundle of dough for years to come.

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