Article preview from Start-Up - June, 2012
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.
Article preview from Start-Up - June, 2012
In what is arguably Kevin Costner’s finest film role, the actor plays journeyman minor league catcher Crash Davis in Bull Durham, who laments the razor’s edge difference between his long, but undistinguished, career and those players who “make it to the show.” A drunken and forlorn Davis notes that one base hit a week over the span of a season – a dying quail, a ground ball with eyes – is the difference between playing in the Carolina League and Yankee Stadium. The scene represents why baseball is an apt metaphor for life – and for the venture capital business. In the case of the latter, the only difference between a top-tier firm and a mid-tier firm is the one or two base hits (read: exits) a year that can raise an IRR high enough to keep a venture firm in the majors (and, these days, in business).
But Davis’ career had meaning even without the extra base hit each week. And while his success could be measured by baseball statistics – he broke the all-time minor league home run record – assessing the performance of venture capitalists without the benefit of IPOs and acquisitions is difficult. And, some might point out, it’s pointless because VCs are rightfully and exclusively judged on their ability to make money for their investors. This is true even if the dollars they invest go to medical device companies that treat injury, cure disease and save lives. Stents, implants and surgical ablation tools serve a higher purpose than a new social media site. But funding companies that improve peoples’ lives doesn’t offset weak returns. In venture capital, the ends – the exit – justify the means.
With that understood, there still must be intrinsic value in a portfolio prior to a point of exit, a measurement of a venture capitalist’s ability to invest. This ultimately may not help a venture capital firm when it needs the help most – when competing for limited partner dollars with investors from other industries, including IT and biopharmaceuticals. Indeed, firms that invest in medical device companies seem to be falling short these days, forcing many to reassess their commitment to the sector. But understanding the state of the portfolios of leading venture firms can help identify the new challenges facing device investors.
To understand the state of device VCs’ portfolios, one first must recognize how these portfolios currently shape up. In this article, we draw a picture of the unacquired, non-public assets that sit in the portfolios of the industry’s leading device venture capital firms. To do so, we compiled a list of companies from 32 venture firm portfolios and set out to gather some critical information about each company.
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