Article preview from Start-Up - August, 2012
The entire venture capital industry is facing difficult times. But few are taking as hard a hit as medical device investors. In our survey of 100 institutional and corporate VCs, 65% of the venture capitalists who said they invest primarily in medical device companies say they’re feeling “negative” about “the current state and future of VC.” Only 17% say they feel positive, with the remainder feeling neutral. Not surprising, device VCs’ worries center around limited partners and the FDA. Limited partners are demanding strong returns before re-upping with new funds, and the FDA, while improving, is holding a firm line in issuing new approvals. Device VCs keep looking for innovative technologies and waiting for opportunities to improve.
Article preview from Start-Up - August, 2012
The entire venture capital industry is facing difficult times. But few are taking as hard a hit as medical device investors. Once a critical piece of the venture capital community, the device sector is becoming increasingly marginalized. Firms that once saw the sector as a hedge against more volatile opportunities no longer see devices as a safer or surer bet.
In our survey of 100 institutional and corporate VCs, 65% of the venture capitalists who said they invest primarily in medical device companies say they’re feeling “negative” about “the current state and future of VC.” That’s a sharp climb from 37% who answered similarly in our survey last year. To be fair, the entire industry is gloomy. Forty-six percent of VCs who identified themselves as biopharma investors gave the VC industry a “negative” rating, an increase from 29% last year. Still, when more than half of device-focused funds are pessimistic about the future, the device industry is in trouble. Perhaps diversity is the key to happiness, only 29% of VCs who invest in both sectors reported “negative” outlook, matching the response they gave last year.
Who’s the happiest among life science VCs? Biopharma investors were relatively chipper with 36% saying they felt positive; generalists (who in fairness also do invest in devices) finished second with 34%, and corporate investors registered at 31%. In a distant and discouraging fourth, only 17% of the medical device investors said they felt positive, with the same percentage registering as “neutral.” Wende Hutton, general partner at Canaan Partners, says she suspects the drop in morale is merely a sign that many device investors are accepting the new reality. “People feel, ‘We’re at the bottom of the cycle,’” Hutton explains. “Are things worse than last year? What is somewhat worse is the funds that had started to throw in the towel last year have now more formally acknowledged that they are not raising a new fund. And some very senior people have stepped back and they’re focusing only on their current portfolio. I wouldn’t say it’s ‘Game over,’ but inevitability has now set in for a subset of medical investors." Hutton says firms with funds, like Canaan, see opportunity in the scarceness of capital.
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