Article preview reprinted from Start Up - September/October 2009
Medical device investors have a newfound appreciation for keeping a lid on their capital commitments. Read more...
Device VCs Keep Eye on Capital Commitments
Article preview reprinted from Start Up - September/October 2009
The recent acquisitions of intraocular lens maker Visiogen Inc. and heart valve repair company Evalve Inc. clearly demonstrated that well-financed device companies can make solid returns for investors even in this difficult market. However, no one is giddy enough for a moment to think these companies are anything but fortunate outliers in a difficult market for mergers and acquisition.
Device venture capitalists are demonstrating renewed concern over how much capital their companies raise. Strategic buyers generally have kept a lid on how much they're willing to pay for device companies. Obviously, the lid may blow off if the company warrants it—see Medtronic Inc.'s acquisition of CoreValve for $700 million. But CoreValve was an exception. Past experience shows that strategic buyers generally pay under $500 million for the hottest properties such as Visiogen and Evalve. Abbott Laboratories Inc. bought both companies paying $320 million—with the potential of another $90 if milestones are met—for Evalve and $400 million for Visiogen.
With an unofficial ceiling in place, device investors are trying to maximize their returns by employing the only element of a financing upon which they have control—the amount of capital they invest. Steven Weinstein, the managing director who oversees device investing at Novartis Venture Funds, says capital intensity "is always a large issue. But I think it's been ignored." Over the past few years, many venture investors have given capital needs a higher priority as they try to ensure that their companies have enough capital to clear the FDA or hit commercialization.
But venture investors speak of a general comfort zone for medical device investments. "When you start to get over $100 million it starts to get a little scary," says Jeani Delagardelle, managing director at New Leaf Ventures, which this year led the $30 million Series D which has started to sell a neuromodulation device as a treatment for drug-resistant depression. Neuronetics' new round put its total capital raise at $96 million, just under the $100 million mark, but the new round came with new terms for New Leaf and others to lessen some of the risk associated with overcapitalization.
--Tom Salemi
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Companies mentioned in this article:
Visiogen Inc.
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