Venture capitalists are pouring more money than ever before into medtech firms but they prefer later stage firms and give more money to fewer firms.
The life sciences sector had the strongest venture capital investment in the second quarter of this year since the second quarter of 2007, before the Great Recession began.
That's according to a new report from PricewaterhouseCoopers entitled, "Biotech soars to a record high." Venture capitalists poured $2.5 billion in 195 deals in life sciences firms in the second quarter, it representing the second strongest quarter since 1995, which is the earliest data recorded by the MoneyTree report from PwC. The life sciences sector is comprised of the biotechnology and the medical devices industries.
"The uptick in VC investing in Q2 is a direct reflection of the activity we’re seeing in the public markets,” said Greg Vlahos, Life Sciences Partner at PwC, in a news release. “As VCs take advantage of the open initial public offering window and the high valuations in the mergers and acquisitions market to exit, they are putting capital back to work for a new cycle of investments. The competition for dollars among the next generation of life science businesses remains, and businesses looking to attract VC investment need to have compelling stories and a roadmap for their product strategies to showcase their path forward.”
In the second quarter, VC funding in the life sciences jumped 25% in terms of dollars invested from the same quarter a year ago. However, the number of deals was flat compared to the same period last year. The same trend of fewer firms getting more money is also observed in a subsegment of the life sciences: the medical devices sector.
In the second quarter, medical devices firms garnered $649 million venture capital through 73 deals for the quarter. That represents a 23% increase in dollars invested but a 5% decrease in the number of deals compared to the second quarter of last year.
Compared to the first quarter of the year, biotechnology investments increased by a whopping 69% while for medical devices firms it was a more humble 8% rise.
While more money went into fewer medtech firms, the chances that a startup a company is successful in raising capital largely depends on the stage the company is in. The earlier stage a medical device company, the lower the likelihood of VC generosity.
The PwC report found that early-stage medical device funding in the second quarter fell 10% to $169 million in 24 deals, compared with $187 million in 38 deals for the same period last year.
The opposite of true of late-stage firms. For them, funding increased 41% to $479 million in 49 deals during the second quarter, from $340 million in 39 deals during the same period of 2013.
From the first quarter of the year, medical device funding declined 22% for early-stage deals but increased 25% for late- stage deals.
As for subsegments, medical therapeutics took the lion’s share of the money pie out of all other medical devices firms, attracting $421 million out of a total of $649 million in the second quarter.