Published Jan. 17, 2024Jackie SpencerHead of Relationship Management for Life Science and Healthcare Bankingjspencer@svb.comIt’s been six months since we brought you our Mid-Year Healthcare Investments and Exits 2023 report, and I wish I could say that much has changed since then — that investments have roared back, valuations are soaring and the IPO window has lifted wide open. Unfortunately, we’re not there yet. What has emerged is a clearer picture of where we’re headed. Strategies that took shape months ago are now showing up in the data, as investors who once favored later stage deals have decisively pivoted toward earlier deals. The result has meant smaller checks spread to a growing number of companies at right-sized valuations. While VC investment in healthcare has settled near half its 2021 peak, deal counts have rebounded in recent months and are approaching their prior pace. If investors were ever sitting on their hands waiting for clarity, that time is over. VCs are back to work.Their investments are creating green shoots of optimism across the spectrum of healthcare innovation. Promising companies are being funded at rates that approach or even exceed historic norms, and the advent of generative AI technology offers immense possibility for innovative healthcare founders. But the challenges of the current market remain significant. A generation of late-stage companies that took high valuations at the peak of the VC boom now face an uncertain future. Dozens or even hundreds of IPO-readycompanies have limited funding options outside of a public exit. For these companies, a public market turnaround couldn’t come soon enough. Life science companies are less affected by the slower market if they have strong clinical results. Biopharma companies with favorable clinical trials are finding plenty of interest among investors and achieving strong step-up valuations. The stickiness we’ve seen in biopharma reflects the longer term perspective many life science investors take. Fewer tourist investors enter this arena, and the LPs that invest in healthcare tend to be more immune to market whims. That reality is helping to bolster fundraising. While tech-focused VC investors are struggling to raise new funds, healthcare investors have fared well. US investors raised $19B in new health-specific funds in 2023, the third highest year on record. Growth in promising areas such as women’s health, AI-enabled diagnostics, drug discovery and personalized medicine are reasons for immense optimism in healthcare innovation. As we look to the year ahead, we understand that many companies will continue to face challenges. The reset now washing through the industry will take its toll. But if this process creates a reality more grounded in fundamentals, where positive and sustainable outcomes are possible for more companies in the long-run, then ...
