Baby boomer wellness sector draws VCs

While Web 2.0 startups compete to woo the youthful Generation Y demographic, many investors are shelling out large sums to businesses that target the parents of MySpace users—the baby boomers.

Investors and entrepreneurs say that there’s a growing number of promising startups that cater to boomers in such sectors as food preparation, elder care and preventative medicine, among others, as the populous post-World War II population approaches its golden years. Indeed, generational observers say, boomers make up for their lack of youth by possessing wealth and a willingness to spend it.

“Baby boomers might be the first group to think that aging is optional,” says James Firman, CEO of the National Council on Aging, speaking at last week’s third annual Silicon Valley Boomer Venture Summit in Santa Clara, Calif.

It’s difficult to quantify how much money is invested in startups that target the boomer demographic. Startups sometimes market their products to boomers but find that best actual customers hail from another generation. Take, for example, Troy, N.Y.-based Celery, which provides a computer-free e-mail services. Founder Andrew Gibson, who participated in a business plan competition at the conference, says that the company, which allows someone without Internet access to send and receive e-mail messages and photos, was targeting baby boomers since many have parents who live far away and with no Internet access. Gibson’s mother, for one, refuses to get hooked up to online access. However, the company has seen its services take off with other groups, such as businesspeople who want to send faxes as e-mails.

“To carve this out as a distinct marketplace is forced,” says Andy Donner, principal at Physic Ventures, of the boomer generation. “But there are certain areas where there are whole new markets opening up.”

Indeed, San Francisco-based Physic invests from a $125 million fund that closed earlier this year. Its focus is companies that address health, wellness and sustainable living. The firm recently backed Dreamerz Foods Inc., a maker of drinks that promote relaxation, which is representative of the sort of companies Physic will fund going forward, Donner says. San Francisco-based Dreamerz has raised more than $26 million from Physic, Burrill & Co. and Prolog Ventures.

Highland Capital Partners is also branching out into the healthy living area, says Bijan Salehizadeh, a partner based at the firm’s Menlo Park, Calif., office. Recent Highland investments include Whole Body, a chain of yoga studios, which has raised $16 million in VC funding since 2003; Pharmaca Integrative Pharmacy, a chain that sells prescription drugs and natural remedies, which has raised $14 million since 2005; and Lululemon Corp., maker of yoga and athletic clothing with a larger boomer customer base. Vancouver-based Luluemon has filed to raise a $230 million IPO on the Nasdaq exchange.

Investments in the wellness sector address the mind as well as the body. Posit Science, a developer of brain health programs, raised $28 million in venture funding since 2003 from such backers as Draper Fisher Jurvetson, Aberdare Ventures and VSP Capital. The San Francisco-based company turned profitable at the beginning of this year, CEO Jeffrey Zimman told conference attendees.

The size of the overall market for wellness services, like the boomer market itself, is difficult to pin down. Author Paul Zane Pilzer, in his book The Wellness Revolution, estimates that the “wellness” industry, which broadly encompasses areas such as healthy food providers, fitness services and preventative medicine, currently accounts for some $500 billion in sales per year and will grow to $1 trillion. Looking at the size of VC investments, however, it doesn’t appear the venture industry sees nearly as much wealth potential in wellness as in other health sectors such as pharmaceutical research.

But a graying U.S. population will likely spur more focused investments, says Mary Furlong, professor of entrepreneurship at Santa Clara University and boomer marketing consultant. She predicts that Silicon Valley venture capitalists will begin to set up longevity targeted funds in the next few years to target services and technologies tied to aging.

Another growth area, Furlong says, is information, monitoring and communications services for boomers and their extended families, such as their elderly parents, much like Celery has aimed to do. Demographics are driving the market, Furlong says.

“You’ve got a generation of 77 million people turning 60, and that means that their parents are turning 80 and 90.”

A recently funded example includes A Place for Mom, which runs an online referral service for eldercare providers. The Seattle-based company raised $9.5 million in 2006 from Battery Ventures.

Another example of this growth area is Home Care Delivered, a supplier of home health care supplies. The Glen Allen, Va.-based company raised $5 million in the past two years from Envest Ventures and other investors.