The state of the med tech venture industry
Presenting data that hadn’t before been publically announced, David Coats, managing director of Correlation Ventures, told the MedTech Investing Conference in Minneapolis today that medical devices have outperformed most other sectors in the venture industry from 2001 to last year. In a session on the state of the med tech venture industry, Coats said that aside from health care services, med tech was the highest-performing sector in venture capital during that period.
In terms of the total venture capital medical device portfolio cash flow statement from 2001 to 2012, Coats said, the total dollars invested into medical devices was $33 billion. But the total returned to venture funds, he added, was just $28 billion.
Mark Scholtes, a partner at PricewaterhouseCoopers, noted there is a capital crunch in the startup community. “However,” he said, “there are some positive signs for the future.”
During the first quarter of 2013, Scholtes said, the number of venture capital deals and dollar amounts have declined across all industries. From the fourth quarter of 2012, he said, venture deals are down 15 percent. Dollars declined 12 percent during the same period. “This continues a trend we saw in 2012,” Scholtes said, with investing across all industries on a downward trajectory.
The venture capital industry overall has been raising money at a slower rate than what it’s been investing, Scholtes said. While the software industry continues to be a bright spot, he said, medical device investment as a percentage of the total venture capital invested nationally continues to decline. The reasons for this, Scholtes said, include the typically higher investment level needed, comparatively longer time frames to a liquidity event, and ongoing regulatory uncertainty. “These factors continue to inhibit companies from attracting venture capital funds,” he said.
Early-stage investment deals are at their lowest level since 1995, Scholtes said. During the first quarter of 2013, he said, only seven first-time medical device investment deals were made. In 2012, the top 10 states for medical device deals were California, Massachusetts, Minnesota, Ohio, New Jersey, Texas, Pennsylvania, Rhode Island, Florida, and Washington.
Despite the downward trend, Scholtes listed the following signs of hope:
- Historical returns in this sector have been very good.
- Medical device companies performed well in the stock market in 2012, a trend that’s continuing this year.
- There’s a huge opportunity for med tech investment internationally.
- There have been recent developments within the FDA to streamline their approval processes.