With the medtech IPO market little more than a tumbleweed-strewn desert, venture investors might be expected to be shovelling most of their cash into late rounds for older device makers, keeping them going until the stock markets become more receptive to flotations. 

In fact, the striking thing about VC spending patterns in the first half of 2022 is the sharp uptick in the very earliest investment rounds. Of all the venture cash ploughed into medtechs this year 12% went into seed and series A rounds – the highest proportion since 2017.

An increased proportion of funding into these early rounds first appeared last year, but at that point a certain up-and-down trendline had been apparent since 2018. The increase so far this year is far more emphatic, suggesting a deliberate interest on the part of VCs in early-stage innovators.

And looking at where this early cash is going reveals a curious reversal of the clear trend in overall VC medtech funding. The recipients of some of the biggest seed and series A rounds this year are working on what might be regarded as “traditional” medical devices. Vantage’s analysis of all the venture financings in the first half found that digital health companies were hugely popular (Venture financing holds steady for device makers, July 22, 2022).

For instance, the joint biggest series A rounds of the first half of 2022, both worth $55m, went to Companion Spine and Forsight Robotics. The former makes implants for degenerative disc disease and lumbar spine stenosis, the funding round having been led by the orthopaedics-focused investor Viscogliosi Brothers. Forsight is a robotic surgery group, specifically offering products to aid eye surgery. 

Cardiovascular device companies are also represented. Artio Medical, which has a suite of vascular products including embolisation devices to treat peripheral vascular disease and cerebral aneurysms, raised $28m. 

By contrast the biggest early round that went to a digital health company was the $10.3m series A deal closed by disease management app maker Swing Therapeutics. 

Why digital medtechs should be so popular overall, but developers of more traditional devices the lure at the early-stage end, is not clear. Certainly there are advantages to both kinds of technology. 

Devices such as implants can command higher prices than apps or software and have established approval and reimbursement pathways; their relative familiarity to doctors can lead to faster market pickup. The downside is the longer and more costly development process.

But on the face of it these factors ought to make digital health companies more appealing at the start-up stage, when reimbursement and market access are not pressing concerns, and limiting development spend definitely is.

Whatever the explanation, the sharp increase in the proportion of VC cash going into seed and series As – and the concomitant decrease for D, E and later rounds – is clear. Ideally this will result in a new crop of well-funded start-ups with innovative devices, breathing new life into the medtech sector. 

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