Is MedTech a Trillion dollar idea?

Fueled at least in part by exceptionally strong IPO and M&A markets, hedge funds, venture capitalists, private equity firms and corporate investors are committing more time and money into privately held medical devices companies, according to a new “Healthcare Investments and Exits” report issued by Silicon Valley Bank.

The report examining the first half of 2021 outlines deals and dollars committed to all sectors within healthcare — while also tracking exiting opportunities for investors. An examination of the medical device portion of the report reveals many promising trends.

First, capital commitments are up. Looking at dollars raised, U.S. and European medical device startups raised $4.6 billion in the first half of this year, putting 2021 on pace to eclipse totals dollars raised in 2020 ($5.2 billion raised) and 2019 ($4.8 billion raised.) It’s worth noting that European startups accounted for 34% of the dollars raised by medical device companies, up from 11% in 2020 and 22% in 2019.

Second, the rise in investments is equally robust — 247 medical device companies in the U.S. and Europe raised rounds in the first half of 2021, putting it on track to smash past tallies in 2020 (300 deals), 2019 (277 deals) and 2018 (263 deals).

Late-stage drivers

What’s driving the increases? In dollars, the report points to “large, later-stage financings.” In the first half of 2021, seven companies raised more than $100 million while 14 companies closed on financings landing somewhere between $50 million and $99 million.

Notable financings include:

• Surgical robot companies CMR Surgical ($600 million and Caresyntax ($100 million).
• Imaging companies also drew huge dollars — EDDA Technology ($245 million) and eCential ($122 million).
• Neurology companies Ablative Solutions, Ceribell, and NeurosMedical drew $40 million-plus rounds from private equity firms, hedge funds and others.

Early-stage hopes

Good news can be found in the early stage as well, according to the report.

Looking at the number of deals, 77 U.S. and European medical device companies raised first rounds (Series A) in 2021, nearly matching the total year tallies in 2020. (83 deals), 2019 (88 deals) and 2018 (86 deals.)

A look at dollars tells a slightly different story. In the first half of 2021, investors committed $516 million to Series A deals in the U.S. and Europe. This still compares favorably to past years, but the difference between the 2021 dollar total and other years isn’t as pronounced: Series A investors committed $668 million to medical device companies in all of 2020; $732 million in all of 2019 and $913 million in all of 2018.

There’s hope in raising second rounds as well. “We also noted new VC leads on many Series B deals, which has historically been a difficult place to find new investors in device,” the report stated.

Solid exit signs

Silicon Valley Bank reports that medical device acquisitions were strong in the first half, with 14 acquisitions generating $4.6 billion for investors. This already tops the $3.6 billion generated in all of 2020 and puts the year on track to match the $9.2 billion paid out by acquirers in 2019 through 17 deals.

After sitting on the sidelines for more than a year, Boston Scientific returned to the market with the acquisition of Farapulse . But Silicon Valley Bank took note of many small- and mid-cap companies assuming the role of acquirer, including NuVasive, SeaSpine, Axonics, Hillrom, and Haemonetics.

IPOs were equally promising. Nine medical device companies went public in the first six months of this year versus 11 companies going public last year. Eight companies held IPOs in 2019.

While the number of IPOs is promising, the more encouraging sign is the post-IPO performance of medical device companies. According to SVB, medical device companies that have gone public over the past three years have outperformed all other healthcare sectors, including pharma and digital health.

Last year, the COVID-19 pandemic sent countless businesses and entire industries around the world into a death spiral, scrambling to keep their heads above water — but, apparently, nobody told the medtech industry.

In 2020, medtech companies raked in $6.4 billion in venture funding, quite a bit above the $5.7 billion investors poured into the sector in 2019 and about equal to the amount raised in 2018, as measured by Evaluate Medtech.

The year’s 170 funding rounds proved themselves to be pandemic-agnostic in another way, too: They took place all year long, with no one quarter jumping too far ahead or falling behind the others. The first and third quarters registered 55 and 50 deals, respectively, while the second and fourth clocked 35 and 30 financing rounds.

And though 2020’s funding total fell short of the all-time high of $7 billion set in 2017, it did break new ground in terms of the average size of each deal.

Over the course of the last decade, as total funding has crept further into the billions each quarter, the number of deals completed has trended downward. So, while medtech startups closed only 170 VC funding rounds last year — the first time that number has fallen below 200 in at least the last five years — each of those deals was, on average, significantly more valuable than those of years past.

The average size of a medtech funding round in 2020 was $37.4 million, leaps and bounds ahead of the previous record-holder, with 2019’s $25.1 million.

2020’s biggest targets for VC cash raked in much more than that average, with each of the year’s top 10 funding rounds (and the next four behind them) clocking in solidly within the nine-figure region. That matches the record set in 2018, which also had 14 funding rounds in the hundreds of millions.

These funding magnets have a lot more in common with each other than just an uncanny ability to thrive through a global health crisis while other industries floundered — many of them are also working toward similar goals.

Eight of 2020’s biggest VC earners are companies that dabble in diagnostics, a field that became significantly more crowded as the year went on, in direct correlation with the rising demand for fast and accurate COVID-19 tests. A handful of these companies rose to the challenge and soon found themselves rewarded for the quick pivot.

Oxford Nanopore Technologies, for example, closed the ninth-highest funding round of the year barely 48 hours into 2020, reporting a $144.5 million intake on January 2. But as the months went on, and as the company scaled up production of its coronavirus diagnostic test, Oxford Nanopore found itself the lucky recipient of about $170 million more spread across two additional financing rounds.

Interestingly, the year’s biggest fundraiser by far was one of only two outliers from the cohort more focused on test development: Verily, Google’s sister company and developer of data-driven technology for biopharmas, academic researchers and hospitals.

Verily raked in a whopping $700 million in December, nearly double the amount of the year’s next-highest fundraising — though that’s par for the course for the Alphabet subsidiary, which previously scored a jaw-dropping $1 billion in early 2019.

All together, Verily and its nine compatriots in 2020’s top 10 claimed about 40% of the more than $6 billion in medtech venture funding over the entire year. Here’s how they split the pot — and what each company is doing now to top an already record-setting year.