Venture capital is flowing back into healthcare-related industries, but investors are still a little leery about healthcare IT investments.

An annual report on venture capital investing by PricewaterhouseCoopers pegs venture capital investments in health industries at $6.33 billion in 2004. That represents 30.2 percent of all venture capital investment during the year.

The most recent results reverse three years of declines in venture investing in the segment, which includes biotechnology, medical devices, and health services and healthcare information technology.

However, health services and healthcare IT received the smallest piece of the three. In fact, for 2004, investors put only $687 million, or 10.9 percent of the funding going to health industry companies.

Even so, venture investment in health services and IT grew the most – up 43 percent – over only $479 million invested in 2003.

"Healthcare IT has been a tough area," said Tracy Lefteroff, global managing partner for Life Science Industry Services at PricewaterhouseCoopers. "Venture investing is driven by customers' faith in general in business conditions. It takes a while for that confidence to rebuild to get people back to buying IT solutions."

The lag in customer acceptance and purchasing in healthcare IT has dampened venture investing in the segment, Lefteroff said. Conversely, an improvement in customer purchasing of healthcare IT will likely prod investment, he said.

The federal government's endorsement of healthcare IT also is likely to improve IT adoption, he predicted.

"On a long-term basis, it will help," he said. "The whole healthcare space has been slower to adopt IT than other industry segments. There's just been a natural reluctance to adopt new technologies and systems. The industry is pretty inertia-driven."

While there's been a lot of investment interest in the healthcare industry, there are few venture capitalists that have the expertise or patience to specialize in healthcare IT, Lefteroff said.

"It's a tough market to work in; it requires a lot of patience and a lot of hard work," he said. "Some funds believe there's lower-hanging fruit in some of the other sectors."

Venture investment is rising because firms have pared out losers and see more examples of new companies achieving value, either through initial public offerings of stock or through mergers and acquisitions, he said.