It has long been assumed that VCs have to tolerate a tortuous route to exit for biotech deals, which often require successive funding rounds, but can console themselves with billion-dollar realisations if they manage to find a home for the assets.
This assumption has been blown out the water by the SVB’s report, which reveals that in fact biotech deals have shorter exit periods but lower multiples than medtech.
“We feel like we are myth busters,” said Jonathan Norris, managing director with SVB Capital’s venture capital relationship management team. “Our research shows that many of the basic assumptions upon which life science investors base their decisions do not hold true in the current market.
The data set was based on M&A exits of US life sciences companies with venture backing between 2005 and 2010, and found that the industry averaged 20 large exits a year, split down the middle between biotech and medtech. During the period, the average time to exit for biotech from the series A rounds was just under five years. Indeed, the rate seems to be decreasing. Last year, the average time dropped by more than 18 months to fewer than four years.
By contrast, medtech companies that achieve small returns (up to 1x) have an average investment life of ten years two and a half years more than their biotech counterparts.
Meanwhile, four of the nine big medtech exits (over 10x) took more than eight years to find a buyer and two took more than ten years. Medtech exits also exceeded biotech multiples in every year since 2005. The average multiple over the period was 5.3x compared with biotech’s 4.1x.
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