Departure, Delays Signal Tough Times For Device Investors

Article preview from Start-Up - April 1, 2011

Medical device investment - both in dollars and number of deals - are the lowest they've been in years. But another point of worry comes when venture capital firms begin shrinking not just their portfolios but their device teams as they lose interest in an area.

Departure, Delays Signal Tough Times For Device Investors

Article preview from Start-Up - April 1, 2011

Venture capitalists might not want to be caught dead in acid washed jeans or bell bottom pants, but they're just as open to the swings of fashion of a different sort when it comes to investing. Their decisions aren't based upon magazine covers or pop stars, but rather on the return potential of certain industry sectors and the external pressures that might complicate a company's ability to go commercial and produce an ultimate exit. By those measures, medical device investing may be falling out of fashion.

Numbers don't lie. Medical device investment – both in dollars and number of deals – are the lowest they've been in years. But the data also don't tell the complete story. Venture capital firms might tack to port or starboard from time to time to maneuver through difficult waters without actually changing their ultimate course, and the numbers can reflect that. But a genuine sign to worry comes when venture capital firms begin shrinking not just their portfolios but their device teams as they lose interest in an area. A recent spate of such departures from venture capital firms suggests that device investing may be losing some support. In at least two cases – Frazier Healthcare Ventures and CMEA Ventures – the departure of a device-oriented partner reflects the firm's diminishing or even disappearing interest in medical device investing.

The strategy shifts vary in degree. Nathan Every, MD, general partner at Frazier, which parted ways with Trevor Moody, who had been with the firm for 11 years and a partner for 10, says the firm will still invest in medical devices. "I can't tell you if we're going to be investing early, mid or late," says Every, who will be investing alongside General Partner Robert More. "We'll invest if it's a deal we think is compelling. But the hurdle has definitely been raised." The FDA is among the highest barriers as increasingly different regulatory reviews make planning for commercialization difficult. Moody declined to comment when reached.

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