Article preview from Start-Up - June 2008
Are the heady medical device funding levels of 2007 going to be sustainable, or even desirable? Find out what our panel of venture investors had to say.
In the world of medical device investing, the pendulum swings. Last year, a record-breaking sum was invested in medtech start-ups; 2007 saw more than $3 billion in venture deals for the device industry alone.
To a certain extent, in the time leading up to the banner year, the volume of dollars and deals going in medtech were inflated by the entry of new investors, including biopharma investors. The theory went that medical device investing presented less risk and, relative to the pharmaceutical industry, shorter-term returns, particularly in light of the recent dismal performance of biotech companies that had recently gone public. Private equity investors played an unusually large role, as did hedge funds. Whether driven by their unfamiliarity with the industry, a desire for quick returns or both, the flood of new dollars poured—40% of venture dollars committed last year—into later-stage companies, filling the coffers of companies raising Series D rounds or later. Early-stage rounds dropped, from $308 million in 2006 to $245 million in 2007.
At In3 West, a medical device conference held in Las Vegas recently, Windhover Information convened a panel of venture investors to ask them what's in store for device companies seeking investments in the near future, and to address one nagging question: whether or not the heady funding levels of 2007 are sustainable, or even desirable. Certainly exits have become more challenging; consolidation has removed certain would-be acquirers and the IPO market has become more demanding; no company will get out there without at least $30 to $40 million in revenues, several on the panel felt. Others were feeling the pressure of having to carry portfolio companies for even longer periods of time; more complex technologies, lag times at the FDA, and the need to get companies not only to the commercial stage but to a revenue ramp were pushing up the number of years to an exit and total investment dollars.
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