I’ve written about unusual deal terms before (here and here), but Bruce Booth’s awesome blog Life Sci VC just introduced me to a great new report on typical life science deal terms. While the big headline is that 83% of life science deals include earn-outs, I was surprised to learn that the average amount of equity invested in medical device companies prior to exit was $60M (median $44M). Senior medical device startup execs should definitely read Booth’s article and download the full report.
If you don’t follow Bruce Booth’s blog Life Sci VC you should.
Booth, a biotech partner at Atlas Ventures, posted recently on both corporate funding and venture debt. While medical device startups typically think of corporate investors coming in to Series C or later stage deals, Booth wrote that “Corporate VCs are now truly ‘preferred partners’ for [Atlas’s] early stage deals.” Booth also pointed out that “Corporate VC funds have very large implied ‘assets under management’.” He estimated that the fifteen top biotech corporate investors “represent about $2.5B+ worth of ‘traditional’ venture funds by conventional measures of fund ‘size’.
Companies use this debt financing for a variety of things: extend visibility to reach key value inflection (e.g., completion of a clinical study); purchase expense capital equipment; strengthen their balance sheet prior to deal negotiations or IPO; or, expand the pipeline by purchasing new assets or advancing secondary programs, among other things.
If you’ve been following my blog, you know that I try to make it easy for medical device startups to identify potential sources of funding. My list of ‘healthcare venture capitalists with money‘ has been really popular. So today I put together a list of healthcare corporate and debt funding sources.
Cameron Health’s March acquisition by Boston Scientific for $1.3B was the subject of some Monday morning quarterbacking by stock analysts.
Leerink Swan Analyst Rick Wise was quoted in Mass High Tech saying “the purchase of Cameron is a major positive for Boston Scientific, ‘with the potential to transform the longer-term outlook for BSX’s lagging CRM business.'”
The Wall Street Journal quoted Citigroup as saying “the dated deal structure … looks too rich and risky” for Boston Scientific.
Whatever the analyst opinions, the striking aspect of the Boston Sci/Cameron deal is the imbalance between the $150M upfront price and the $1.2B in milestone-based payments.
My list of ‘healthcare VC’s with money to invest’ has become increasingly popular, and today I’m very happy to say that I’ve reached an important milestone: three years of data.
In total, my list now includes about 250 VC fund raising announcements from January 2009 to February 2012. Considering that VC’s typically make their new investments within three years of the fund’s raise, I suspect that the list includes the vast majority of healthcare VC’s that are actively making new investments in startups today.
Earn-outs – tying part of the acquisition price to the achievement of future milestones – have become increasingly common in medical device M&A. In April 2010, Start-Up Magazine reported that earn-outs were used in 9% of the medical device acquisitions in 2008, 13% in 2009 and an astounding 31% of deals in the first quarter of 2010. As an example, in August 2010, Hologic completed its acquisition of Sentinelle Medical for $85 million, plus an earn-out tied to a multiple of incremental revenues over the next two years.
My friend and serial CEO Dan McNulty encouraged me to write about stock options. My experience is that stock options encourage employees to “think like an owner. ” I have always found that my colleagues are motivated by the potential of their options, and are interested in the drivers of their stock’s valuation. So it’s an important subject and I appreciate Dan’s suggesting it.
Stock options are a subject that has been extremely well covered on the web, particularly by VentureHacks and Mark Suster of GRP Partners. So, in this post, I’ll mostly point you to other blog posts. Read them. I’ll also try to provide some helpful information specific to medical device companies, and share a couple of thoughts from my experience.