Positive VC investment trend in Medical Devices

Medical devices investment in US from VC amounted to $700 million spread over 84 deals in Q2. Last quarter, investment was $686 million over 72 deals. What has investment has been like historically in medical devices?

Long-term trends are encouraging. Available data is compiled from 1995 (source: PWC Moneytree, NVCA). While the data is presented by quarter, I wanted to see what the longer-term trends look like by graphing annualized data.

While there are rises and falls (the press gets very excited about reporting such short-term boosts and slumps), the overall trend is growing upwards at a healthy clip.

Peak VC investment was in 2007 with $3.88 billion, followed by 2008 with $3.67 billion. 2011 is the next best year at $2.84 billion (on par with 2006 at $2.86 billion).

So what are the main trends that emerge by looking at the longer-term picture from 1995-2011:

  • Overall medical device investment has risen from $657 million to $2.84 billion, a compounded annual growth rate (CAGR) of 9.6%
  • Nos of deals funded has nearly doubled, growing at CAGR of 4.2%
  • Average deal size has more than doubled from $3.67 million to $8.23 million. (Some companies raise very large amounts – for H1 2012, the Top 10 VC medical device deals range from $89 million to $26 million, with ConforMIS taking the top spot for a knee replacement system).

While none of these are a guarantee that such trends will continue, the overall support for the medical devices sector from VCs is indisputable. This is likely supported by well-reported demographic trends – ageing societies, increasing expectation of quality healthcare from baby-boomers – along with continuing advances in technology.

As a medical device entrepreneur, what can you do to make sure your company gets funded? VC Jimmy Rosen of Intersouth Partners (interviewed for the Top 10 article) suggests focusing on the following:

“Device and diagnostics companies seeking venture investment can boost their chances by focusing on manufacturing at a lower cost, on products that can be used in both the U.S. and emerging economies, and on products that maintains the quality of care”

Good, common sense advice.

This post is by Raman Minhas.

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