Co-founded by Versant, NEA investors, new medtech VC firm kicks off inaugural fund with $225M bounty
In an era where medtech doesn’t get the same love that biotech does from the average investor, two medtech-focused investors from a pair of keystone venture capital firms — Versant Ventures and New Enterprise Associates (NEA) — are coming together to bridge the gap in private market capital for the underserved sector.
Launched this year, the VC investment firm — called Vensana Capital — closed its inaugural fund, Vensana Capital I, with $225 million in committed capital from a cadre of institutional investors, including public pensions, university endowments, foundations, leading academic health systems, family offices, and fund-of-funds, it said on Wednesday.
Co-founded by Versant’s Kirk Nielsen and NEA’s Justin Klein, Vensana’s focus will be on the kaleidoscope of subcategories that constitute medtech: medical devices, diagnostics and data science, drug delivery, digital health, and tech-enabled services.
“I think one overarching theme for many products we invest in is trying to move them from the more expensive side of care, to the less expensive,” Nielsen noted in an interview with Endpoints News.
For example, devices that can communicate with physicians or other providers to identify patients that are at risk for being admitted with heart failure, or COPD. Another opportunity is about addressing chronic diseases, where patients aren’t necessarily compliant or therapies have side effects that prevent adoption.
“We like the idea of identifying surgical strategies, neural modulation based strategies or other medtech-based interventions that can effectively treat the underlying condition,” he said.
Although Vensana is an independent firm, Versant will provide support. Sharing deal flow can extend the opportunities that emerge at the intersection of the two strategies — such as drug delivery or diagnostics, Nielsen added.
Nielsen, who was once a professional hockey player and has previously worked with Medtronic, has been with Versant for over a decade and was in charge of the firm’s medtech practice.
In biotech — where Versant operates — investment is largely focused on early-stage company creation. In medtech, the opportunity lies in mid-to-late stage opportunities, he said.
“Most medtech companies are best positioned to go public or be acquired in a competitive process for the time when they’ve really demonstrated the adoption of their products by clinicians, surgeons and hospitals,” Vensana’s other founder, Klein, emphasized. Klein served as a partner at NEA for more than 12 years.
“Because of the timelines, capital requirements associated with navigating the early-stage concept all the way through to a scaling US revenue stage business, it’s often been the case that (…) some of the most compelling investment rounds of financing from medtech companies have come kind of more midstream in that process.”
Vensana wants to capitalize on a relatively healthy macro environment for medtech.
“If you look at the exit markets in medtech, they’ve been really strong, and you’ve got M&A (…) that continues to have kind of a solid, consistent pace, you’ve got IPO windows that are now open, and (…) multiples that are all time highs,” Nielsen said.
Data from Silicon Valley Bank (SVB) suggest strong performance of device IPOs should spur continued later-stage venture investment. Meanwhile, investments in the first half of 2019 in digital health have already eclipsed full-year 2017 investments and are on track to hit $10 billion in 2019, the report said.
Deals for diagnostics and medical tools are also expected to climb in the second half of 2019, and R&D tool investment is set to surge following the successful IPOs of Adaptive Biotechnologies and Personalis, SVB analysts estimated.
In the last year, the public market has been a successful way for Dx/Tools companies to capture value. Accordingly, we anticipate more $B+ IPOs than private M&A for 2H 2019. We also believe tech companies will start to acquire Dx/Tools companies in the AI/ML big data space.
Companies in the medtech sector — akin to their counterparts in pharma — need to build out their pipelines. “Yet, there are very few… well capitalized, sophisticated medtech investors that are available to support these companies. And so we’re trying to kind of bridge that gap,” he added.
In the exit environment, there is a tremendous need for new technologies and startup companies. Whether that’s building new product markets in chronic disease, or products that are really complimentary to blockbuster franchises such as those in orthopedics, reconstructive devices, or interventional cardiology.
“These (products) can provide value growth drivers for some of the large acquirers in our space,” Klein said. “The exit markets today have been great, but there’s a relative dearth of companies and innovative products that have made it to that phase.”
With the $225 million in their coffers, Vensana hopes to invest in a dozen companies, injecting between $10 to $30 million in each company, Klein noted.