Whatever uncertainties exist in healthcare, venture funding isn’t one of them.
Jonathan Norris, managing director of Silicon Valley Bank’s life science and healthcare practice, recently told a Salt Lake City crowd that healthcare venture capital fundraising reached new heights in 2017, at $9.1 billion. That was up 26 percent over 2016.
“When you look at the trend line from 2014, really the takeaway for me is that there is a lot of capital in the market, but when you start delving into what kind of capital is there and supporting what types of companies, it’s been heavily biotech-biased,” Norris said at the Entrepreneur and Investor Life Sciences Summit, presented by BioUtah and Technology & Venture Commercialization at the University of Utah.
Over the past couple of years, there has been more investment in diagnostics and tools. Traditional venture investors had pulled back from devices but 2017 saw them return to that sector.
“There is plenty of capital in the market, so over the next two to three years, there should not be much slowdown in terms of the amount of capital that’s being invested into new investments for those venture firms,” Norris said.
Series A funding in biopharma rose from $2.3 billion in 2016 to $2.7 billion last year — “a tremendous amount of capital invested into biopharma,” Norris said.
Corporate venture became a bigger slice of the investment pie, with one in three Series A being a corporate venture. Boston and Northern California were the hotspots for biopharma investing activity.
Series A investing in devices in 2017 seemed to trend toward non-invasive monitoring. The median round size was $3 million to $4 million, compared with biopharma’s $15 million-plus. That sector had a mix of investors, with Northern California being an investment focus.
Tools and diagnostics saw “stable” investment activity last year.
“We are seeing a lot of folks really focusing on tools and diagnostics, leveraging artificial intelligence and machine learning, and a folks that are doing that are really more of the tech folks,” Norris said. “Investors see the intersection of artificial intelligence, machine learning, big data, [and] genomics all together, and their perspective is, if we can help with artificial intelligence [and] machine learning to get something done better, faster, cheaper, in big markets, we’re there.”
As with other sectors, Northern California dominated tools and diagnostic Series A rounds.
Venture-backed biopharma company initial public offerings (IPOs) have seen an upward trend in the past couple of years, and although mergers and acquisitions (M&A) activity has slowed, Norris predicted it will pick up this year. M&A has been focused on early-stage companies since 2014. The time to exit for venture-backed M&A companies last year averaged 3 1/2 years.
“Most people really think about, ‘Oh, we’re talking 12 years and a billion dollars to get a drug over the goal line and commercial.’ Well, that may be, but there are plenty of biopharma acquirers looking to pick you up early, based on really interesting data in big markets,” Norris said.
As for 2018, he predicted that fundraising will slip from 2017’s record figure “but still within sort of the high area that we’ve seen over the last few years, so dropping down but it’s not like it’s falling off of a cliff.”
Biopharma will see a slower deal pace but continued “very healthy investing” in the sector. M&A should have “a really big year,” and IPOs should be steady.
Norris was asked about how Utah companies can get more venture funding. He suggested that executives expand their networks and tell their stories. Venture capitalists are busy and often prefer to invest closer to home but are willing to invest elsewhere “if it’s a compelling story and it’s having the right, compelling story with the right management team,” he sasid.
“Those folks want to hear about new, compelling technologies and they’re willing to go and travel to places where there's really interesting stuff,” he said, adding that Utahns should “let them know about the types of interesting technologies that you have.”
“One of the things I that hear about all the time, when you talk about companies that are outside of the Boston, SoCal, NorCal area is, what does the team look like? Have they been there and done that? … Part of it is sometimes that technology wins, but I do think that it feels to me that traditional venture folks really are looking for a match of technology with a proven management team.”