Corporate investing plays an ever bigger role in medtech

The newest player in corporate financing, Intuitive, intends to deploy its fund with surgical precision.

Venture financing

In launching an in-house investment fund today Intuitive Surgical is very much in tune with the times. Intuitive Ventures has already started disbursing capital from its initial $100m fund to start-ups developing digital tools and precision diagnostics, among other technologies, with an emphasis on minimally invasive care.

Intuitive will join many of its peers: seven of the top 10 medtechs by sales have corporate venture arms. And they are more active than ever. A new analysis of corporate investment trends shows that medtech companies with investment units participated in rounds worth $1.2bn in the first three quarters of this year – more than a quarter of the total venture funding the sector raised. 

An Evaluate Vantage analysis of EvaluatePharma data shows that 13% of the venture deals closed by private device developers in the first nine months of 2020 included at least one corporate venture capital (CVC) fund as a backer.

Looking at the value of these rounds, however, shows how great a role CVCs play: financings including at least one of these groups made up 27% of all the venture cash the sector raised, a greater proportion than has been seen for at least a decade.

Corporate VC activity in medtech, 2015-2020
Year Value of rounds with CVC participation ($m) Value of all rounds ($bn) % of value from rounds with CVC participation
Jan-Sep 2020 1,203 4.5 27%
2019 987 5.6 18%
2018 1,405 6.4 22%
2017 1,634 7.1 23%
2016 961 4.4 22%
 
Year No of rounds with CVC participation Total no of rounds % of rounds with CVC participation
Jan-Sep 2020 18 140 13%
2019 23 224 10%
2018 39 267 15%
2017 33 312 11%
2016 30 345 9%
Source: EvaluateMedTech.

Note that the table above does not mean that the $1.2bn was entirely contributed by corporates; the actual figure will be smaller. The rounds they took part in would have included traditional VCs in the syndicates too. When a VC deal is done it is rare that the exact contributions of each member of the syndicate are made public, so it is impossible to calculate the precise figure forked out by corporate funds.

Still, the prevalence of CVC rounds is undeniably increasing. Perhaps this is a reaction to falling investment elsewhere. Medtech VC deals without corporate participation are on course to total $6bn by the end of 2020 – the lowest figure since 2016. 

Perhaps the Covid-19 pandemic is also partly responsible for the sector’s growing interest in funding early-stage device makers. Many of the most active CVCs, such as Johnson & Johnson’s JJDC, Boston Scientific and Medtronic, have had difficult years with lockdowns prompting postponed and cancelled orthopaedic and cardiovascular procedures (Orthopaedics companies’ nightmare quarter, August 25, 2020). It could be that they want to seed start-ups to keep them supplied with acquirable companies as a hedge against difficult times in the future. 

Top 10 most prolific investors over the past 5 years
Investor No of investments Total value ($m)* Avg size ($m)*
JJDC 21 1,545 77.2
Boston Scientific 15 352 23.5
Illumina 11 891 81.0
Medtronic 11 372 33.8
Roche Venture Fund 7 697 99.5
Novartis 7 536 76.6
Pfizer Venture Investments 6 291 48.5
Cochlear 5 250 50.0
Novo Nordisk 5 122 24.4
Abbott Laboratories 4 74 18.5
*Total and average values of rounds in which the investor has participated. Source: EvaluateMedTech.

JJDC was founded in 1973, making it the oldest CVC in the medtech sphere. It is also the most prolific. Since 2016 the fund has played a role in 21 VC deals worth a cumulative $1.5bn. This vast figure was swelled by Grail’s $900m series B in early 2017.

Another of Grail’s corporate backers is the company that would go on to buy it: the sequencing specialist Illumina (Illumina sees the light – or thinks it does, September 21, 2020). Illumina has stepped up its CVC activity this year, investing in four companies so far in 2020, more than any other corporate investor.

Sadly for the earliest start-ups, corporate funds are just as risk-averse as traditional VCs – perhaps more so. As the graph below shows, rounds with corporates on board are bigger than those without, suggesting that they are backing later-stage private groups in need of large sums, rather than smaller groups seeking a few million. Still, as the $8bn Grail acquisition shows, these bigger bets do sometimes pay off handsomely. 

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