The Dawdling Dollar Drought 2012: It wound up being good advice: “Be prepared for a roller c

The Dawdling Dollar Drought
2012: It wound up being good advice: “Be prepared for a roller coaster ride,” National Venture Capital Association (NVCA) President Mark Heesen told investors early last year at a Southern California roundtable, “because that’s where we’ve been for the past year—and that’s where we’re going.”
Indeed, U.S. venture capital firms spent the last 12 months traversing the dizzying peaks and descents of the fundraising “big dipper,” garnering an overall $26.5 billion from 3,698 deals. The data represent a 10 percent increase by dollar commitments compared with 2011 and a 3 percent decline in number of transactions, according to Thomson Reuters and the NVCA. Life sciences investments seemed stuck in reverse despite solid boosts from the medical device and biotech sectors, falling to a low of 25 percent of all venture capital dollars invested in 2012 (a 1 percent decrease compared with 2011).
NVCA analysts blamed much of the decline on poor first-time financings, particularly in the biotechnology and medical device arenas, where deal volume plummeted to its lowest levels in 17 years. The first-time financing fallout likely contributed to a 15 percent reduction in medical device deals and 13 percent drop in dollar value in 2012. A MoneyTree Report by PricewaterhouseCoopers LLP and the NVCA based on data from Thomson Reuters shows the medical device industry finishing the year with $2.4 billion invested in 313 deals. “We continue to see the impact of public policy on venture capital investment levels in very specific ways,” Heesen said. “Life sciences investment was suppressed for much of the year, particularly with first-time financings, due in part to the impact of the regulatory and reimbursement environments…”

2013: Buckle up. Again. With few changes in store for the U.S. regulatory system and reimbursement environment, VC firms should brace themselves for another dizzying ride along the rails. This year’s trip, however, could have more peaks than nadirs—an impressive 2012 finale by the medical device sector (a 32 percent increase in capital and 9 percent hike in deal volume) is giving hope to investors who have long struggled to raise cash. At the recent J.P. Morgan Healthcare Conference in San Francisco, Calif., venture capitalists noticed an atmosphere of “cautious optimism” not seen in several years. “There is a more somber tone on the device side,” Mike Carusi, a veteran medical device investor with Waltham, Mass.-based Advanced Technology Ventures told The Wall Street Journal. “The industry in general still feels under siege. But I’m optimistic. The big [medical device companies] are clearly concerned that their farm team is going to shrink. I’m seeing much more involvement and collaboration…we’re cautiously optimistic.” Burrill is confident as well, but he’s tempering his hope with pragmatism—he expects life sciences capital to remain expensive and relatively scarce this year, though the industry could still amass $100 billion in funds, “with financings heavily weighted to large companies and to the use of debt.”