Surge in IPOs and M&A Drives Significant Growth in Venture Capital Exits in the Healthcare Sector

It is not only mergers and acquisitions (M&A) that are driving profitable exits for healthcare venture capital firms, but also consistently robust initial public offering (IPO) activity. VCBeat has compiled survey charts from CB Insights to provide you with an intuitive overview of M&A and IPO activities among healthcare startups in 2014.

According to the latest report from CB Insights, more than 60 venture-backed healthcare companies went public last year, representing a 65% increase compared with 2013. In fact, nearly half of all venture capital exits in the healthcare sector were achieved through initial public offerings (IPOs). The chart below provides a detailed comparison of M&A exits and IPO exits for U.S. healthcare venture capital investments:



The boom (or bubble) in biotechnology is increasingly making its presence felt. Last year, it accounted for 20% of venture capital exits; whereas in 2010, biotech represented only 10% of medical venture capital IPO exits. While medical devices are often perceived to yield only unprofitable exits, reports indicate that they firmly hold a substantial share of venture capital exits. Below is a chart detailing venture capital exits by sector:



The report describes this trend as “barbellization”: there are many companies raising less than $20 million, and equally many securing over $100 million, while the number of companies raising between $20 million and $100 million is significantly smaller. It is instructive to examine which sectors attract funding at each scale. Pharmaceuticals typically command the largest share of capital due to the exorbitant costs of drug development. In contrast, medical devices and health IT can largely operate with substantially less funding.



In addition, we should also pay attention to the acquirers in M&A activities. The following chart shows the ranking of acquirers among U.S. healthcare companies:



The figure below shows the venture capital firms with the highest number of exits:



CB Insights also tracked the venture capital exits of the top 20 U.S. healthcare startups last year. The chart below shows the top five rankings, as of December last year.