As noted in the 2017 Preqin Global Private Equity and Venture Capital Report, healthcare is one of the leading industries in venture capital. In the US, healthcare fundraising has been strong: healthcare-focused venture capital funds have raised at least $5.4bn annually over the past five years. New opportunities in fields such as pharmaceuticals and biotechnology have encouraged venture capital interest in the healthcare sector. In this blog, we examine these funds as well as the stages and sub-industries they are targeting.
According to Preqin’s Venture Capital Online, generalist venture capital healthcare funds (those investing across all stages) continue to be the most sought after among investors, raising $25bn through 94 vehicles closed since 2012. The largest of these funds dedicated solely to the healthcare sector is Deerfield Private Design Fund III which closed on $1.6bn in 2014, making investments in healthcare, biotechnology, pharmaceuticals and medical devices. Early-stage healthcare funds maintain a strong standing in the market, with $10bn raised over the past five years, whereas expansion-stage healthcare funds have not had as much traction, collecting only $4.1bn since 2012 and closing just two vehicles in 2016.
Pharmaceuticals and biotechnology are areas that have attracted interest from venture capitalists looking to fund companies that will further cancer treatment, produce the next “miracle drug” or drive biotechnology innovation in areas such as gene therapy and bioinformatics. In 2016, three funds closed that invest solely in biotechnology: Column Group III with $535mn in commitments, Longwood Fund III ($90mn) and Biomatics Capital Partners, a first-time fund ($200mn). The number of funds looking to make pharmaceutical investments increased from three in 2015 to seven in 2016, including the closure of the $471mn UBS Oncology Impact Fund and the $64mn Nextech IV Oncology.
Given the strong opportunities in these areas, the healthcare industry will likely continue to be an attractive sector for US venture capital fund managers and their investors in the near future. Although it remains uncertain at this stage how changing US healthcare policy is likely to affect venture capital activity, significant changes under the Trump administration may perhaps create new opportunities for these funds to target.