Slump in medtech VC activity continues as inflation keeps investors on the sidelines

Dive Brief:

The value of medtech venture capital deals fell 40% year-over-year in the first quarter, according to financial data provider PitchBook.
Investors struck deals worth $1.8 billion over the first three months of 2023, down from $3.0 billion across the start of 2022.
Analysts at PitchBook attributed the VC slowdown to inflation, higher interest rates and a frozen IPO market, plus the “challenging financial health of health system end-markets.”

Dive Insight:

VC investments in medtech startups increased once the initial shock of the pandemic passed. From the third quarter of 2020 through to the first quarter of 2022, the quarterly deal value averaged out at $2.5 billion. However, the $3 billion raised at the start of last year proved to be the high-water mark.

Medtech investments fell in the second half of 2022, when quarterly VC activity averaged $1.75 billion. Compared to that period, the value and number of deals in the first quarter rose 12.5% and 34% respectively, but the figures are still among the lowest seen since the start of 2020.

Diagnostics and life sciences reported the biggest drop, with VC deal values falling 83% year on year as about $1 billion less capital flowed into the sector than in the prior period. The sole area of growth was medical imaging, where VC deal value more than doubled to $458.9 million.

The PitchBook analysts identified AI-powered medical imaging as a “core” category of growth. The other core categories of growth named in the report are oncology diagnostics and remote patient monitoring. The analysts see wearable electrocardiograms as a growth niche within patient montioring, estimating that the market is increasing in size by 15% to 20% each year and could be worth nearly $5 billion by 2030.

While the analysts see remote patient monitoring as a growth area, investment in health wearables is at a low ebb. PitchBook tracked 45 VC investments with a total value of $300 million in the first quarter. In 2021, the quarterly number and value of VC investments averaged 67 and $700 million, respectively.