Covidien, formerly Tyco Healthcare, has established a captive venture capital arm to invest in areas of “strategic importance” to the company.
The rebranded healthcare products provider spun out of Tyco International in 2007. Covidien’s product line spans medical devices, imaging solutions, pharmaceuticals and medical supplies for hospitals, long-term care and alternate care facilities, doctors’ offices and the home.
“One of the issues that Covidien had when it was part of Tyco was chronic underinvestment in research and development and so that’s left us with a number of business areas where we’re really behind from a technology standpoint,” said vice president of public relations Bruce Farmer.
Covidien Ventures will target early-stage investments in emerging technologies applicable to Covidien’s product lines. “It may involve us acquiring specific technology, it may turn out that we buy companies, or it just may be we make an investment and we may get nothing out of it,” said Farmer.
Investments will be made opportunistically from Covidien’s balance sheet which contains $1 billion (€680 million) in cash.
The goal of the group is to provide Covidien with exposure to new technologies and new markets. “What this group will do is really get us a better opportunity to seek out those technologies, to investigate those technologies, to work with our global business units on what specific technologies they foresee as upcoming,” said Farmer.
Covidien hired Daniel Sheehan two months ago to head a three person investment team and manage the activities of Covidien Ventures. He was previously a general partner at Minneapolis, Minnesota-based venture firm Affinity Capital management targeting the healthcare sector.
Covidien’s strategic objectives for its venture arm are in line with those put forth by many other corporate venture units.
“Our intention when we invest is to drive strong strategic returns by being able to get visibility into new innovations before they become mainstream. In some cases, it’s to understand new business models as they’re being innovated,” Cisco’s vice president for corporate development, Hilton Romanski, previously told PEO in regards to the technology company’s venture activities. Cisco also occasionally uses investment capital to align interests and forge relationships by investing in related companies well-positioned in target geographies.
In-house venture arms have had a spotty history of success. Some market participants will recall that after a burst of corporate venture investing in the late 90s, a number of companies abandoned unsuccessful endeavors including Hewlett-Packard, British Airways and AT&T. This resulted in a number of team spin-outs and secondary transactions such as Olivetti Ventures, the venture division of a now-defunct computer manufacturer which Paul Capital spun-out in 1995 as 4C Ventures in a $56 million synthetic secondary deal.
Following some disappointments in the 90s, there has been a resurgence of corporate venture investing. Nokia this month put $150 million (€96 million) more capital behind its $250 million growth venture fund. Google, meanwhile, is reportedly looking to launch a new venture investment group, separate from a philanthropic arm already making VC-like investments in renewable energy. Technology giants Motorola and Intel are also among those with active venture arms.
“Corporate VCs are definitely getting back in, but I think that it is different than before, in that they have continued to develop a deeper understanding of the direct secondary market and their ability to have more control over their exit,” David Wachter, founding partner of direct private equity secondary firm W Capital, told PEO earlier this month.