In terms of venture capital (VC) funding, the medical device sector remained one of the hottest investment areas in 2009 despite a sluggish economy, according to a recent report from PricewaterhouseCoopers (PwC). More than 300 deals were conducted in the medical device and equipment arena, which helped accumulate an estimated total of $2.5 billion in VC funding.

“I guess as long as the baby boomers keep aging and we keep engaging in wars, pacemakers and artificial limbs will remain hot,” mused Randy Churchill, director of emerging company services at PwC. He presented data from the firm’s investment report at a California Institute of Technology enterprise forum in March in Pasadena, CA. PwC has tracked VC data for about 15 years.

Overall, venture capitalists doled out $17.7 billion in 2009 (2795 deals), which represents a 37% year-over-year decrease from 2008. The medical device sector was the third-largest investment area for venture capitalists, bested only by biotechnology and software. Within the device industry, surgical equipment, pacemakers and artificial organs, and other therapeutic devices were the top three sectors, respectively.

VC funding by medical device sector in 2009. Click here to see the figure.

In some good news for aspiring device entrepreneurs, the start-up and early-stage numbers are fairly healthy and higher than the average for all sectors. Churchill said that about half of all medical device investments occur during these stages, whereas these stages typically account for about 35% of investments in general. In addition, the medical device sector includes research grant money as well as angel and personal investments that are not reflected in the funding figures.
Medical device transactions had an average deal size of slightly more than $8 million, which is $2 million more than the average deal size across all industries.

“It makes sense when you think a lot more capital-intensive expenditures are required. [There’s] equipment, the approval process, and a longer time to commercialization,” Churchill said. “So more money needs to go into a medical device company than your average venture-backed company.”
 

A video of the forum and the complete PwC report is also available.