Report: Med tech venture rounds upsized but more sparse in Q1

Greg Vlahos, PricewaterhouseCoopers partner

Two of the three largest venture rounds in U.S. life science startups last quarter went to medical device companies. That's a bit of an unusual state of affairs for med tech--which sometimes has the reputation of getting investment in dribs and drabs to back tech that's none too innovative.

These financings were $75 million for real-time surgical cardiac imaging startup Acutus Medical and $45 million for nasal obstruction implant player Spirox. What do they have in common? Both aim to improve minimally invasive surgical options.

Overall, medical devices and equipment U.S. startups took in $508 million in venture capital during the first quarter. That's almost on par with the $480 million a year earlier, according to data from The MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association based on data from Thomson Reuters.

But the number of deals last quarter dropped markedly to 59, from 76 a year ago. That reflects the need for VCs to continue to support older companies, as the somewhat active 2015 IPO market has entirely dried up so far this year for medical devices. It is also related to a dearth of early stage deals, which are typically smaller.

"We are still seeing VCs pull back from early stage and seed stage deals; there are a lot more later-stage deals," noted PwC Life Sciences Partner Greg Vlahos in an interview with FierceMedicalDevices. "We are seeing less liquidity, so some of these older companies are needing funding. First time financings are down across almost all industries."

The very volatile public markets so far this year are starting to put a chink in VCs' confidence in the future. Venture capital investment trends typically lag the public markets by several markets, as it's much tougher to alter investment strategies at this earlier stage in the game. VCs are likely pulling back on early stage as they watch and wait to see if the public markets will stabilize.

Also, last year was one of the largest venture investing years ever, making it tough to keep that steep upward trajectory. But med tech, with its valuations that are typically much lower than private biotechs, may be looking like a bargain right now to biotech investors who have seen public and private market valuations climb in biotech for several years now.

Lots of major investors known for their biotech activity started turning to med tech more last year; last quarter's ranks include private equity group KKR as well as active biotech investors OrbiMed Advisors, Venrock and Aisling Capital. Biotech crossover investor Deerfield Management was in both of the largest med tech financings last quarter for Acutus and Spirox, while Sofinnova Ventures spinout HealthQuest was in two of the 10 largest financings.

- here is the release