Funding Medtech Ventures 4146
Medical technology hubs are leading the way in venture capital investment.
November 1, 2006
FINANCE
Although biotechnology often grabs the headlines within the life sciences field, the medical technology sector has quietly positioned itself over the last several years as a stable engine of innovation and economic growth. The promise of emerging breakthroughs and the healthy returns that accompany the successful commercialization of new medical devices have fostered a strong investment following by the venture capital community—a trend expected to continue for the foreseeable future.
According to the PricewaterhouseCoopers—National Venture Capital Association MoneyTree Report, in 2005, venture capitalists invested more than $2.1 billion in emerging medical technology companies, a 25% increase over 2004.1 Investment in the first half of 2006 suggests similar growth this year.
To a large extent, the interest in medical technology investing is being fueled by the successful exits of venture-backed companies in recent years. From 2004 through the first half of 2006, 44 medical technology companies completed initial public offerings (IPOs) in the United States, accounting for a high percentage of all recent IPOs. Additionally and as importantly, these IPOs have delivered strong aftermarket performance. The medical device industry continues to discover new and better ways to improve patient treatment. However, these companies must still convert innovations into commercially viable products in order to succeed.
In addition to the relative strength of the medical technology IPO market, medtech mergers and acquisitions activity has also proven to be robust, with 92 acquisitions of venture-backed companies taking place since 2004. Small, nimble companies have proven to be excellent strategic targets for larger medical technology companies such as Boston Scientific Corp. (Natick, MA), Johnson & Johnson Inc. (New Brunswick, NJ), and Medtronic Inc. (Minneapolis), which are seeking to acquire innovation and augment their research and development pipelines.
Buoyed by these successful transactions, venture capitalists are committing further resources to the sector, and more venture firms are raising funds designated specifically for medical technology investment. With the average life span of a venture capital fund being 10 years, the medical technology sector can expect the flow of risk capital to continue well into the next decade.
The investment outlook bodes well for regions that can create and sustain a healthy venture-investing environment. The strongest U.S. regions in medical technology venture investment include Northern California, Boston, and Southern California, and generally possess the following key elements.
Strong infrastructures girded by capital and professional services, such as corporate and
intellectual property attorneys, and certified public accountants familiar with the innovation
process.Large, established companies from which to recruit talent and expertise.
Entrepreneurial cultures supported and encouraged by local government.
University communities that support research and provide a pool of innovators with deep and