Dive Brief:
- Venture capital investment in medtech companies rose roughly 3% year over year to $3.3 billion in the second quarter, according to a new report from market data resarch firm Pitchbook.
- At the current rate, VC funds will invest close to 20% more in medtech firms this year than in 2023, Pitchbook said, offering support for the view that the industry has “passed through the trough” of funding.
- The value of exits for venture-backed medtech companies increased to $6.6 billion in the first half of 2024, although the data are skewed by Tempus’ initial public offering. Acquisitions of late-stage VC startups have been rare, a fact Pitchbook attributed to “ongoing price gaps between buyers and sellers.”
Dive Insight:
The number and value of VC investments in medtech companies peaked in 2021, per Pitchbook’s data. Compared to the peak, the number of investments in 2023 was down 27% and the amount invested had fallen by 45%. Last year appears to be the low point for investment.
VC investment fell sequentially in 2024, slipping from $3.5 billion in the first quarter to $3.3 billion in the second quarter. However, investment in the second quarter was still up about 3% year over year. The results suggest investment in 2024 can exceed the $11.5 billion seen last year.
The number of investments, at 419, is tracking below the pace of 2023. The amount invested has increased despite flat to down deal numbers because VC funds have placed big bets on a small number of companies. Pitchbook said there were five deals above $100 million in the quarter, and the increase indicates “ongoing investor preference for quality and optimism around greater exit possibilities.”
A $150 million investment in Insightec, a developer of focused ultrasound treatment, was the largest VC round in the second quarter. Pitchbook estimates Insightec will exit by listing its shares on a stock exchange.
The prediction follows a quarter in which Tempus raised $400 million in an IPO. The public offering by the precision medicine company showed unprofitable medtech companies can go public in the current environment. Pitchbook said Tempus’ success could “shift investors’ willingness to support unprofitable companies if a public listing emerges as a realistic possibility.”
The extent to which the IPO window opens could affect mergers and acquisitions. Belkin Vision, Attune Medical, C2i Genomics and Blackrock Neurotech were all acquired in the quarter. Combined with the IPO exits, the deals led Pitchbook to “view VC exit levels in medtech for 2024 so far as a solid win for the sector and a positive sign for deal value and exit momentum going forward.”
Yet, the Pitchbook analysts said deal activity for late-stage VC startups is lagging acquisitions of larger, publicly traded companies such as Shockwave Medical, Axonics, Abiomed and Silk Road Medical. The analysts attributed the lack of buyouts of venture-backed firms to sellers asking for more than buyers are willing to pay. The availability of IPOs as an exit option may influence whether the valuation gap persists.
“If the IPO window remains closed, this could benefit strategics from an M&A standpoint, as startups may be more willing to be acquired at a reasonable multiple,” wrote Pitchbook.