The VC Investment Reality of 2014 for Medtech

Originally Posted in Medical Venture Capital



Pricewaterhouse Coopers just released the MoneyTree Report and the results of the first quarter venture capital investment activity, are mixed.

Medtech companies have been complaining that there has been a flight of VC capital from early stage companies. Apparently it is easier to squeeze water out of a stone than get financiers to assume the risk of pouring capital in early stage medical device companies. The PwC and National Venture Capital Association’s MoneyTree Report, based on data from Thomson Reuters, would have us believe otherwise.

It found that in the first quarter of 2014, early stage medical device funding increased 11% to $216 million through 25 deals, compared with $194 million in 29 deals for the same period last year. In fact the average deal size for early stage medical device firms – $8.6 million – was the highest ever.

Venture capitalists invested $1.7 billion through 173 life sciences deals during the first quarter, compared to $1.4 billion in 173 deals during the same period in 2013. Life sciences deals include deals involving biotech and medical device firms.

“Life sciences and biotechnology investments are off to the strongest start of the year since the recession,” said Greg Vlahos, Life Sciences Partner at PwC, in a statement. “A strong IPO market has contributed to increased venture capital investments. We’re continuing to see interest in these businesses, especially in the early stages of their development. Venture capitals ability to monetize their earlier investments and source early-stage investments is a positive sign for ongoing investments in life sciences.”

The amount of dollars invested in medtech firms in the first quarter was up 28% from the invested amount in the fourth quarter of last year. The average deal size for medical device firms was $9.6 million, the highest since the third quarter of 2008.

Early stage companies were not the only ones to see more money. Overall, venture capitalists invested a total $588 million through 61 deals, which is 5% higher in the amount of money invested from the same quarter a year ago. However the number of deals done fell 18% from those done in the same period a year ago.

So here is the new reality for medical device firms looking for capital. There is money to be had and more money per deal than in any other time in history for early stage device firms and since the beginning of the recession for all firms, irrespective of stage. But venture capitalists are being selective in the deals that they are doing. Instead of throwing money at many firms that piques their interest ands spreading the risk, they are putting more money in deals that they believe in.

Now it’s time for device firms to do a convincing job of explaining their overall value to the changing healthcare landscape.