Silicon Valley Bank specializes in working with smaller, growing companies, including in the health care industry. It released a report on health care investing in 2017. (SVB Report) According to the report $9.1 billion was raised by health care-oriented venture capital funds in 2017, a 26% increase over 2016, and continuing a strong multi-year trend which has led to a large amount of capital in search of a home. The largest sector for investments by those venture funds is life sciences products and tools sector, and investments in that sector reached $15.5 billion, a 31% rise over the prior year, in over 1050 funding transactions, about the same as 2016, implying that average investment round size rose. The biopharma sector got $10.5 billion of this investment (oh boy, even more expensive products coming down the pike) and devices and supplies got around $5 billion. Early stage investing rose, corporations participated in about 30% of these early rounds, oncology was a particular focus and the median funding size was $9 million. Massachusetts led in the number of transactions, at 72, followed by northern California at 51 and southern California at 22. On the device side, non-invasive monitoring, orthopedics and neurology appeared to be the most popular sectors. Series A funding for devices jumped in 2017 and there was greater corporate participation. Northern California led in device transactions with 25, followed by Massachusetts and Minnesota. The subsector of tools and diagnostics had more transactions n 2017, but slightly lower funding. Liquid biopsy companies attracted some very large rounds.
On the exit side, biopharma IPOs rose to 31 from 28 in 2016, but well short of the 66 in 2014; while merger and acquisition exits dropped to 14 from 20 in 2016. Total exit value in 2017 was $18.7 billion, down from $26.5 billion in 2016. This likely reflects a hot stock market encouraging small companies, who probably shouldn’t do it, being encouraged to go public. Welcome to nano-cap hell. Oncology had the highest number of exits, with neurology and orphan indications next. As has been the case for several years, exits are occurring at a relatively early stage, with most before commercialization and many in the pre-clinical phase, although in the biopharma subsector there were more later clinical stage IPOs. Pre-money IPO valuations appeared quite high, over double the 2016 median valuation. Median proceeds were also up significantly. There were 12 IPOs which raised over $100 million in 2017, compared to just one in 2016. Device exits and exit value were stable year-over-year. The top indications for device exits were cardiovascular and vascular. For 2018, SVB projects slightly lower venture fundraising, but greater exit volume, particular in medical device.