Med tech VC spending grew in Q3, but deal numbers declined

Medical device industry venture capital investment improved somewhat during the 2013 third quarter, representing the first dollar increase in many months, though the number of deals declined. It's a milestone, of sorts--the first time in ages that the word "improved" could be used in reference to med tech venture investment.

For the third quarter, investors funneled $566 million into 65 medical device industry venture deals, according to the latest MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Reuters. That's a 12% hike in dollars but an 8% drop in deals versus the previous quarter, when investors committed $543 million to 71 med tech deals.

It is sobering that the deal number dropped. But the higher investment levels are encouraging. Venture investment in med tech during the 2013 first quarter reflected a 20% drop in deal value and 10% plunge in deal numbers over the prior quarter--a dismal start to the year in terms of VC investment. But beyond that, venture capital investments in med tech companies have declined in dollar value and number for some time. An upward trend of any kind is worth celebrating at this point.

Med tech hasn't exactly been a stellar investment draw, save for exceptions such as ConforMIS, which expanded and nearly doubled a Series E financing round in the third quarter that hit nearly $168 million. The Massachusetts orthopedic implant maker reflects the kind of med tech company that typically attracts widespread investment now. The funding, which came from sovereign wealth funds, government investment funds and private equity funds in the U.S., Europe, Asia and the Middle East, is designed to help, in part, to boost marketing and manufacturing efforts for ConforMIS' iTotal knee replacement system, which already has regulatory approval in the U.S. and Europe.

In other words, med tech companies with a product near or at approval continue to be much safer venture investments. That's particularly true in the U.S., where the Affordable Care Act's focus on value, plus a tougher reimbursement climate, make it harder for companies to gain ground in the marketplace, particularly with untested technology that is early in the development process.

So which industry sector attracted the highest level of VC funding during the third quarter? The software industry wins the prize. Venture investment in the sector hit $3.6 billion (surpassing $3 billion for the first time in more than a decade). Software deal numbers also hit the 420 mark, 23% higher than the previous quarter. Biotechnology came in second, drawing $852 million into 123 deals, a 39% drop in dollars but a 10% jump in deal numbers compared to the previous quarter.

Med tech as per usual, came in third, according to the PwC/MoneyTree report.

- here's the release

Special Report: Top 10 Med Tech Investments of Q2