Health care venture fundraising persists amid market woes

Venture fundraising into health care hit $15.8 billion halfway through 2022, which already translates to the third-highest year in history, SVB’s new mid-year report on health care investments and exits shows.

Why it matters: In a market fraught with public market volatility and a slowdown in dealmaking, investors are having no problem raising new vehicles with dedicated allocations to health care.

• That validates the industry’s longer-term tailwinds and resilience as market (and macro) headwinds continue dominating headlines.

Zoom in: Venture investment in health tech, specifically, can be characterized by a record level of seed and Series A fundings during 1H 2022, which includes a higher frequency of $50 million-plus Series A rounds, SVB says.

• Fueled by clinical trial enablement deals, the median seed and Series A funding valuation increased to $13 million, versus $10 million the two prior years, per the report.

Reality check: Overall, Q2 investment fell 40%, from Q1, the report shows. Plus…

• There were no VC-backed health tech public debuts in the first half of the year following the 2021 IPO party.
• While early-stage fundings thrived, late stage activity dropped off with the IPO window shut down.

Between the lines: If you look at the market from a historical perspective, things still look pretty good.

• Across health care, Q2 investment totaled $15.5 billion, which is lower than every quarter in 2021 but more than every 2020 period, per SVB.
• In health tech, volume and capital invested declined notably relative to 2021, but at $10.2 billion of investments already well on pace to surpass 2020.

Yes, and: Health tech, compared with other sub-sectors, witnessed the strongest step-up multiples, both in early- and later-stage fundings, SVB says.

• Early stage standouts were Patient12 (17.9x) and Homeward Health (10x), Atlas Health (13.7x) and AcuityMD (12.3x).
• Late stage standouts were CareBridge Health (10x) and Health Gorilla (5.5x).

The most active: Accounting for venture activity overall, Gaingels has been the most active health tech investor since 2021, clinching 33 total investments, SVB says.

• General Catalyst, Alumni Ventures Group, Andreessen Horowitz, and Insight Partners followed suit.

What’s next in health tech: SVB predicts…

• Q3 investment in health tech will drop to 2020 levels but bounce back in Q4 to ~$7 billion.
• Activity will be characterized by lower valuations and fewer mega-deals as public market chaos weighs on private markets.
• Top companies will see more insider and bridge rounds, but more down rounds are likely.
• Non-traditional investors will participate in fewer new venture-backed deals compared with 2021.