Q3 Medtech Venture Investment Up 12%

In the third quarter of 2006, venture capital investment in medical device firms increased 12% to $639 million compared with the previous quarter, according to the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association. Overall, the life sciences sector—which encompasses the biotechnology and medical device industries—received significant interest from venture capitalists in the third quarter, with $1.8 billion going into 177 deals.

Notably, the third quarter represented the first time that biotechnology had the distinction of receiving the highest level of investment among all industries tracked by the MoneyTree Report. Despite a 5% decline to $1.14 billion after an exceptionally strong second quarter, biotechnology took the top spot from the software industry, which saw third-quarter investments totaling $1.09 billion. The telecommunications industry ranked third for the quarter, with investments totaling $848 million, followed by the medical device industry in fourth.

Across industries, the third quarter was marked by increasing strength in seed and early-stage investment. “We are at a point in the investment life cycle at which many venture capitalists are deploying fresh funds that have been raised within the last 18 months or so,” said Mark Heesen, president of the National Venture Capital Association. “Thus, venture capitalists are finding themselves at the beginning of a fairly long runway, betting more on those seed and early-stage companies that they believe will have the most promise in five to seven years from now.”

In addition, an increased number of companies in several industries—including medical devices and biotechnology—received first-time funding during the third quarter, according to the report.

On a state-by-state basis, medical device companies in California received more than 40% of the industry's nationwide investment in the third quarter, with 36 deals totaling more than $290 million (see table). Companies in Minnesota saw the second-highest level of investment, with about $104 million during the quarter. However, the average investment per deal in Minnesota was more than double that in California. Rounds of funding for Minnesota medtech companies averaged more than $20 million, with the average deal in California at about $8 million.

For an in-depth look at regional venture capital investment in medical device firms, look for the article “Funding Medtech Ventures” by Guy Paul Nohra in the November/December issue of MX: Business Strategies for Medical Technology Executives. Nohra is cofounder and managing director of life sciences venture capital firm Alta Partners (San Francisco).

© 2006 Canon Communications LLC

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