Medtech funding ventures into the unknown

In a truly extraordinary year, the top 10 venture rounds made up more than half of the total invested.

In terms of venture financing, the first quarter of 2017 was like nothing the medtech sector has ever seen before. Driven by the two enormous deals signed by Grail and Verily Life Sciences, the Q1 total hit $2.7bn, nearly twice as much as the previous record-holder, Q2 of 2010.

But, in an amplification of a trend that has been accelerating for some years now, the number of deals signed has cratered (see analyses below). The Q1 total of 95 was respectable, but the latter three periods of 2017 fell lower and lower, culminating in just 20 deals in Q4, the fewest since Q3 2002. Massive deals are safer for VCs, but if smaller device companies cannot access growth funding these huge rounds could, overall, render the sector’s future highly unsafe. 

Naturally the extraordinary showing in the first quarter means the annual total was also a record-breaker: at $5.1bn last year’s total was the highest on record. As well as Grail’s near-billion series B, putting the liquid biopsy company firmly into unicorn territory, and the $800m seed funding picked up by Verily, formerly known as Google Life Sciences, there were two other rounds in excess of $100m. 

Guardant Health, also active in liquid biopsy, raised $360m in the second quarter and shared an investor with Verily: Temasek, Singapore’s National Wealth Fund. These top three rounds of 2017 are also the top three in the medical device industry’s history.

Top 10 rounds of 2017
Date Round Company Investment ($m) Focus
March 1 Series B Grail 900.0 In vitro diagnostics 
January 26 Seed capital Verily Life Sciences 800.0 Diabetic care; ophthalmics; patient monitoring
May 11 Series E Guardant Health 360.0 In vitro diagnostics 
November 2 Undisclosed Annoroad 105.0 Blood; in vitro diagnostics 
May 3 Series C Outset Medical 76.5 Nephrology
October 24 Undisclosed Neuropace 74.0 Neurology
November 29 Series B Electrocore 70.0 Neurology
December 18 Series F Respicardia 58.5 Anaesthesia & respiratory; cardiology
August 16 Series C Color Genomics 52.0 In vitro diagnostics 
March 16 Series C Moximed 50.0 Orthopaedics

The fourth nine-figure round went to the Chinese sequencing company Annoroad. The company is involved in genetic testing for fertility purposes, including non-invasive prenatal testing, a means of diagnosing foetal chromosomal abnormalities using a sample of the mother’s blood. Annoroad’s AnnoGene business is one of the top three sequencing service providers in China. The company’s investors – GTJA Investment Group, Ping An Ventures, SBCVC and SAIF Partners China – are also Chinese.

Being a cheap technology with the potential for widespread use, sequencing and genomics companies are catnip to VCs. The fourth such company in the top 10 table is Color Genomics, which is aiming to tap the consumer genetic testing markets alongside groups like 23andMe.

2017 was wonderful for a few companies seeking venture capital – but woeful for the majority. The number of deals slipped again, with the annual figure of just 225 the lowest since 2006. The trend downwards is clear in both the annual and quarterly analyses.

One statistic sums up the haves-and-have-nots aspect of venture funding in 2017: the top 10 rounds make up more than half of the total invested. True, 2018 seems likely to see a diminution in these $100m-plus rounds – not least because Grail, Verily and the rest of that cohort tend to be secretive companies that have a great deal to prove in the clinic – but the number of finding deals must pick up if the sector wants to be sure of a healthier future. 

To contact the writer of this story email Elizabeth Cairns in London at [email protected] or follow @LizVantage on Twitter

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