Medical Device Corporate Venture Landscape

By Michael Quigley, Director of Research, LSN

The medical device industry has long been plagued by a lack of early stage venture capital, with investors in the space often citing uncertain regulatory issuers, reimbursement and adoption as reasons for not heavily allocating into the sector. As such many medical device companies find themselves unable to secure funds from traditional venture capital firms. More and more large and established companies interested in the medical device space however are looking further upstream for innovative companies to collaborate with and add into their product lines. LSN’s research team has spoken with over 60 of these companies across 17 countries, who have established corporate venture funds or allocating directly off of their balance sheet, to identify the types and stages of technologies that they are currently looking for.

Figure 1 | Source: LSN Investor Platform | Data as of October 7, 2015

Corporate venture investors tend to be the most global of the investor classes when searching for new opportunities and the medical device space is no exception. 81% of the corporate venture investors LSN’s research team has spoken with are looking globally, a significant increase over all other types of investors where LSN has found that closer to 50% are looking globally. When fundraising it is crucial that you consider strategic partners located all over the world as they are not only able to provide capital, but also they can often provide distribution and manufacturing in foreign markets.

Figure 2 | Source: LSN Investor Platform | Data as of October 7, 2015

The most common subsectors that these firms are looking to invest in, Electro Mechanical Medical Devices and Diagnostic/Monitoring Devices is driven by a number of factors. The first being that a number of these corporate venture investors are subsidiaries of large tech companies looking to leverage their expertise in software into the medical fields and software enabled devices is one area they see a lot of opportunity in. Other trends factoring into this increased level of interest include the “Internet of Things” spreading into the medical industry, more efficiently connecting patients to healthcare providers through these devices. There’s also a new demand for devices able to communicate easily with EMR to more easily meet the US government’s EMR requirements.

Figure 3 | Source: LSN Investor Platform | Data as of October 7, 2015

The majority of these firms are looking for pre-commercial stage technologies. Prior to commercialization is when the most risk is present in any investment and these strategic players are willing to bear that risk while many venture capital firms appear to be staying clear of it.

As an entrepreneur in the medical device field, not looking to large strategic players as a source for capital is by and large a huge mistake. Not only are these firms looking early, and globally but they also have deep pockets which can be a massive benefit if you require follow on funding. In addition to raising capital from one of these firms, you are often aligning yourself early with an exit partner.