The medical device industry has been experiencing a decline in research and development budgets while concurrently having to provide the necessary innovation of products and services to support the demands of the market, and to do so within a increasingly rigorous regulatory environment. During this challenging time many medical device Linkedin groups committed to supporting start-up communities, such as theMedical Device Group and Medical Devices and FDA, have experienced an increased in members discussing the difficulties of finding angel or venture capital (VC) investors open to solicitations for partnerships. This working atmosphere has prompted medical device development teams to re-analyze their current methods of supporting their resource and capital needs.
The 2014 second quarter (Q2) VC Investments MoneyTree™ Report from National Venture Capital Association and PricewaterhouseCoopers was just released and it’s confirmed there is a continuation of the downward trend in medical device and equipment investments. This year medical device investments are at their lowest percentage of total (5.5% of $22.7 billion YTD) VC funding since 2001, when it received 5% ($2.1 billion) of the total $40.9 billion invested.
The Q2 2014 percent of total was also down -32% from Q2 2013, when it represented 7.4% of the $7.2 billion invested during the quarter. Despite the decrease in industryimportance year-over-year, the total value of VC investments increased 23% and the average deal increased 30% to $8.9 million. There is still room for optimism within 2014, as the highest average dollar amount per deal for the medical device industry was $9.3 million in the record breaking year of 2007.
Although the pessimist would counter that the medical device industry recently fell out of the final four largest investment sectors (2014 YTD: #1 Software, #2 Biotechnology, #3 Media & Entertainment, #4 IT Services) and VC investments have been decreasing since the peak in 2007. In that year there were 399 medical technology VC deals inked for a total of $3.7 billion. Another factor for consideration is the venture capital industry’s change in stage of development investments. In 2014 the percentage of seed stage deals is only 4.8%, which is a decrease of -61% from 2007 when they represented 12.5%. In fact, seed and early stage deals are down -20% as a percentage of total deals year-over-year. So with less funding opportunities for seed and early stage technology development, today’s medical device start-ups need to be more efficient and effective with their resources.