Have Device VCs Bet Too Big?
Medical device investors in recent years subscribed to a bigger-is-better philosophy when it came to investing. VCs were eager to pour more capital into start-ups of all stages, believing it was shrewder or simply necessary to carry companies further along in development. However, a review of data from several sources suggests that bigger bets may not have been better.
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Micro Interventional Devices was founded around opportunities in addressing the procedural challenges that limit patient access to transcatheter heart valves. The company’s initial focus is on developing a transcatheter valve for the replacement of the mitral valve, and an easy and effective transapical access and closure method for transcatheter mitral and aortic valve procedures. The company’s mission, though, is to broadly focus on advancing structural heart disease treatments, and MID’s first-generation technology has potential application to several areas of structural heart disease, including PFO/atrial septal defect closure, left atrial appendage closure and cardiac ablations.
Our data-driven review of the portfolios of more than two dozen leading medical device VCs show that the median life span of venture-backed companies hovers at seven years. Younger medtech companies are getting by – and getting farther in the regulatory process – with less capital, reflecting the current state of an industry that sees a whole lot of belt tightening in its future.
2009 was the most difficult year the device industry faced in a long time, particularly given the boom years that preceded it. Public and private investors grew nervous and sat on the sidelines, as did most corporate acquirers. As a result, most start-ups found it difficult to raise money and VCs were frustrated by the poor returns being generated, especially compared with the previously frothy climate. The silver lining may be that there are signs that the economic environment may be improving and that corporate acquirers will continue to pay a premium for the right deal. Overhanging all of this, however, is the specter of health care reform and its impact on the device industry, whether through a device tax, comparative effectiveness or some unanticipated other result, meaning the industry is far from out of the woods.