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Healthcare venture fundraising rises to a new high of $17 billion

The mark was propelled by a strong IPO environment and robust private merger and acquisition activity.

Jeff Lagasse, Associate Editor

Healthcare venture fundraising soared to $17 billion in 2020, a 57% increase over 2019's record, according to Silicon Valley Bank. Investment in venture-backed companies also rose to a new high of $51 billion.

SVB's 10th annual Healthcare Investments and Exits Report, released Thursday at SVB's Innovate Next virtual summit, analyzes and predicts trends for global venture capital fundraising, investing and exits that shape the biopharma, healthtech, diagnostics/tools and medical device sectors.

WHAT'S THE IMPACT?

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Strong IPO environment and robust private merger and acquisition activity propelled U.S. healthcare venture fundraising to a fourth-consecutive record year to $17B. The third quarter of 2020 set a high-water investment mark of $15 billion, the largest healthcare investment quarter ever recorded. Each sector – biopharma, healthtech, dx/tools and device – experienced record investment.

IPOs in all sectors set or tied record numbers. Post-IPO performance for venture-backed 2020 healthcare IPOs has been exceptional, with average performance of +100%.

Record biopharma investment was led by large mezzanine rounds that quickly transitioned to IPOs. Thirty-three biopharma companies closed mezzanine rounds in 2020 and went public in the same year. The time between mezzanine round and IPO averaged just three months.

The number of healthtech deals surpassed biopharma for the first time ever (614 vs. 570), but biopharma investment ranked highest with $24.5 billion invested. Biopharma and dx/tools each saw multiple $1 billion-plus private M&A in 2020, leading both sectors to record returns for the year.

Healthtech companies achieved a market cap of $9.8 billion at IPO. Compared to 2019's total of $5.7 billion, this year's class of IPOs were nearly twice as valuable at IPO.

Device M&A was down in 2020, but the sector has seen sustained IPO activity and record post-IPO performance Post-IPO performance for the class of 2020 achieved a healthcare best of +150%.

In terms of outlook for the coming year, SVB anticipates stable biopharma investment in Series A and later-stage mezzanine financing, slightly below 2020's record numbers. Meanwhile, healthtech investment will remain strong; as virtual and hybrid care models see continued growth, more venture-backed healthtech companies will expand to provide alternative care.

Dx/tools could achieve record investment again in 2021. Deal numbers will likely fall, but the dollars invested should be in line with 2020 volumes.

THE LARGER TREND

2020 also saw an increase in digital health funding. Mercom Capital Group this week released its tally: $14.8 billion in equity raised across 637 deals, as well as $6.8 billion in debt and public market financing across 26 deals.

These represent a respective 66% and 278% increase over the firm's count for 2019. In total, 1,694 different investors took part in these deals, and the firm tracked a total of 184 mergers and acquisitions during the past year, a slight increase over the 169 transactions of 2019.

In just the fourth quarter of 2020, there were 139 equity funding deals totaling $4.5 billion, a 165% increase over Q4 2019.
 

Twitter: @JELagasse
Email the writer: jeff.lagasse@himssmedia.com