Device company VC funding continues its plunge

Med tech venture investing continued its painful decline in the 2013 first quarter, dropping a whopping 20% in dollars and 10% in deal numbers versus the last three months of 2012, according to the latest MoneyTree survey.

This quarter's PricewaterhouseCoopers/National Venture Capital Association report, which is based on Thomson Reuters data, showed an overall decline for life sciences VC funding as well. As for the medical device industry, it maps yet another chapter in the steady drop in VC investing that has continued unabated since 2007.

"The number of venture funds out there investing in this space has decreased fairly dramatically," Tracy Lefteroff, global managing partner of PWC's venture capital practice, told FierceMedicalDevices.

For the 2013 first quarter, medical device and equipment investment fell to $509 million, a 20% drop from the 2012 fourth quarter. Though the investments covered 71 deals, that is a 10% decline over the previous quarter. A year ago, in the 2012 first quarter, venture investment in medical devices and equipment surpassed $719.7 million.

Lefteroff blames poor returns in the sector, driven in part by what is seen as a continued lack of transparency at the FDA about how to bring a device or drug through the approval process.

"That has been a huge challenge for these young companies, how to get a regulatory pathway in place that these young companies can rely on," Lefteroff told us. He added that the remaining investors in the space are continuing their migration to late-stage investments--away from riskier, early-stage startups and toward opportunities where FDA approval isn't an issue.

David Douglass, a partner at Delphi Ventures in Menlo Park, CA, and an NVCA board member, agreed.

"People are tending to look to invest in companies where there is either not an FDA approval required, or the company has FDA approval," Douglass said. But as a result, he said, "the amount of innovation coming into healthcare" through new startups "is decreasing dramatically."

The MoneyTree survey found that first-time financings declined overall in all sectors to levels not seen since late 2009. And only 20 life sciences companies won first-time financing during the quarter, the lowest since the second quarter in 1995. Biotechnology investment hit the $875 million mark, covering 96 deals. But that's a 33% plunge from the previous quarter in terms of dollars and a 30% drop in deals.

- read the release

Special Report: Top medical device VC investments of 2012