Changing Dynamics of Medtech Investing

November 10, 2011
107 Views

It has been recently postulated and debated whether there has lately been a “Series A Crunch” in financings — not specific to medtech (which we solely focus on here) but for all investments. The evidence had been suggestive that a recent increase in the number of seed financings was taking the wind out of the sails of the next round, being Series A, of course.

It has been recently postulated and debated whether there has lately been a “Series A Crunch” in financings — not specific to medtech (which we solely focus on here) but for all investments. The evidence had been suggestive that a recent increase in the number of seed financings was taking the wind out of the sails of the next round, being Series A, of course.  More companies with seed financing has led to fewer companies needing funding in the next round.  The dynamic underlying this is suggested by some as being that investors put money into seed rounds not necessarily to capture a greater share of the potential windfall when the company goes to IPO (how often does that happen?), but to take advantage of the opportunity for “mini-exits” in which a nice return can be made by capturing the premium available when a company’s promising technology has been sufficiently developed to allow the company to be sold to allow an innovation-hungry established company to take the product through the rigors of final development and (in medtech) regulatory approval.

I personally do not track the stage of investment that closely, although I can say that anecdotally (from the amounts and numbers of medtech financings I see in Series, C, D and even E) it appears that investment has indeed shifted to later stage, presumably so that investors can mitigate the uncertainty and risk of the unknown. 

What I do track is the aggregate medtech investment month by month, and here I see that, despite the idea that aggregate investing has been in decline, there has been an increase, especially from 2010 to 2011 in total medtech investing.  See this below in a graphic illustrating medtech financing from 2009 to 2011 (to date).

Source: Compiled by MedMarket Diligence, LLC

 

Although it should be clear, despite the volatility, that investment is up in 2011, it does become more clear that this is the case when looking at the data on a rolling three-month average (please excuse the other difference that the graph below was done in Excel, while the one above was done in Google Docs):

Source: Compiled by MedMarket Diligence, LLC

 

When the financing takes place — seed funding or later — certainly makes a big difference to the companies trying to innovate.  Cash is needed at every step of the process and any dynamic that shifts the relative amounts for stages will alter the nature of innovation.  I am happy to have others track investments by stage more thoroughly than I have time for and I appreciate the insights coming from that effort.  

I personally am just pleased to see that 2011 looks better than 2010.