Healthcare Venture Capital Fundraising List 2012 Q4

Time Is TightThe glass is half full. I’ve been tracking the fundraising activity of healthcare venture firms for the last few years, and I estimate that there are about 250 VC firms actively investing in healthcare innovation worldwide. In contrast, a list I created ten years ago, at InfraReDx, included about 500 healthcare VC firms. Times are tight in 2013.

Why the drop?

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Star Medical Device Engineer – Attitude

Engineering Department employees, 1962
Engineering Department employees, 1962 (Photo credit: Seattle Municipal Archives)

One of the best parts of starting a medical device company is the opportunity to build a great team. At Fractyl, I’m happy and proud to say that our team is truly awesome – talented, hardworking, committed, and fun. Putting together a great team is not easy – for every position, we’re always looking for a superstar. Somehow we’ve found them.

One of my best friends runs an engineering group at a major contract research lab, and we occasionally commiserate about the difficulty of hiring great engineers. Of course, number one on our list is technical expertise. Don’t knock on my door if you don’t have the technical chops. While technical competence is hard enough to find, my friend and I are both looking for more than mere technical brilliance. The number two attribute on my list of star medical device engineers is attitude.

In an effort to improve performance, my friend gives each of his engineering hires an article from 1999’s IEEE Spectrum: “How to be a Star Engineer” (or here).  It’s a great article that would benefit almost every engineer. The author, Robert Kelley, presents nine strategies that lead to better engineering performance. Attitude is critical.

Here’s the attitude I’m looking for:

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Bits and Atoms

atoms to bits
atoms to bits (Photo credit: Will Lion)

More than two million drug-eluting stents were sold worldwide in 2011, of which 87% were manufactured from just five product designs [source]. The success or failure of product development is ultimately measured by financial outcomes. Each of us hopes our large investments in product development will be returned many times over by the sale of millions of profitable manufactured units.

A great product design is thus the set of instructions that enables scalable, salable, profitable production.

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Typical Life Science Merger and Acquisition Terms

Payday Loan Place Window Graphics
Payday (Photo credit: taberandrew)

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.

Read Booth’s post here.

Download the study here.

Read the press release here.

Press coverage on PE Hub here.

Healthcare Venture Capital Fundraising List 2012 Q2

 

Sanger Institute and Hinxton Hall, Cambridge, UK
Sanger Institute and Hinxton Hall, Cambridge, UK (Photo credit: Wikipedia)

It’s been several months since I’ve updated my list of “Healthcare VC’s with money to invest,” so I have plenty to report.

I’ve added about 35 new announcements of firms that successfully raised new funds or are actively raising new funds. Most VC firms that are actively raising new funds are simultaneously looking for investment opportunities, so they will be positioned to put their new money to work right away. Definitely consider pitching them.

While there are a few really small funds (under $100M), the majority of healthcare-focused firms seem to target a$150M to $300M fund sizes. A handful of diversified firms have also raised new funds. While diversified firms are typically larger, it’s important to remember that the healthcare portion is just one piece, and may not be bigger than the healthcare-focused funds.

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Healthcare Corporate and Debt Funding Sources

Loans
Loans (Photo credit: zingbot)

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’.

Booth’s post Venture Debt: Under-Appreciated Tool for Building Biotechs teaches similarly valuable lessons. He suggest that the “the debt market in the life sciences is about 10% of the equity market,” and that:

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.

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Reference Checking Your Prospective New Boss

Who's the Boss?
Who’s the Boss? (Photo credit: Wikipedia)

Medical device employment and compensation have been frequent topics of mine over the past couple of years (see list below). It’s an important theme.

Today I’d like to talk about reference checking your prospective new boss. As a senior executive in the industry, I’ve hired many people for my companies – some more than once. As part of the hiring process, I always try to find colleagues in my network to provide references on the prospective hire. My goal is to build an outstanding team, and mistakes are costly.  While I always ask candidates to provide references, I also like to check with colleagues not on that list.

Turnabout is fair play. Yet I’ve never had a prospective employee ask me for references. Why not? I’m happy to provide them.

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Getting the deal done

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.

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New England Medical Device Series A Syndication

It’s been about a year since I published a list of newly venture-funded New England medical device companies, so it’s time for an update (see below). The Series A rate continues to trend at two-per-quarter, despite the purported decrease in the number of active VC’s.

Last year I noted the surprising proportion of diagnostic technologies in the startup list. Over the last four quarters, only one of eight newly-funded startups is developing a diagnostic. That’s more in line with expectations.

This year I’m taking the opportunity to respond to a question from a colleague: Should I syndicate my Series A round or raise funds from a single venture investor?

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Healthcare Venture Capital Fundraising List 2011 Q4

English: The Village Duck Race Held each Febru...
Image via Wikipedia

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.

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