text: Healthcare Venture Investment Q1 2022 | Silicon Valley Bank
  Record $86 billion in venture funding for healthcare companies in the US and Europe for the full-year 2021.
  At $19.6 billion in Q1 2022, healthcare investment pace down from 2021 but still far ahead of 2020.
  Late-stage valuations impacted by difficult public market, notably in biopharma, dx/tools and device.
  2021 was a record year for healthcare funding, with $86B invested into venture-backed private healthcare companies in the US and Europe, up 65% from 2020 and 153% from 2019.
  Please read my previous blog: Healthcare industry sectors: An overview of 2021, covering an overview of the entire year of 2021.
  In Q1 2022, investment totals were down from the records set in 2021 but ahead of 2020 quarterly activity, the second-highest investment year on record.
  Preliminary investment data* shows $19.6B raised in Q1 2022, down 17% from the recorded activity of Q1/Q2 2021 and similar to Q3 2021. This pace is still far ahead of 2020 ($12–15B per quarter), providing evidence that while the breakneck pace of 2021 has slowed, investment activity (deals and dollars) remains historically strong.
  We predict this sustained investment environment will continue to be fueled by the number of newly closed venture and opportunity funds in 2020 and 2021.
  We have seen later-stage valuations impacted by the problematic public market, notably in Q1 financings in biopharma, dx/tools and device.
  Valuation pressure will continue in 2022 and into 2023 as expectations catch up to companies that raised big rounds at high valuations in 2020 and 2021.
  Biopharma investment dips
  Aggregate numbers show an excellent Q1 2022 bounce-back for biopharma, which had three successive down quarters since Q1 2021. However, the increase was primarily inflated by the record $3B Altos Labs financing (a cell reprogramming deal led by biotech legends Hal Barron and Rick Klausner).
  Removing that outlier shows another down quarter in Q1 2022 and activity similar to biopharma investment in 2020 (the second-best investment year on record). There were 20 financings over $100M in Q1:
  Altos Labs ($3B)
  Eikon ($518M)
  Kallyope ($236M)
  Maze ($190M)
  We also noted a significant decrease in the number of deals from 2021, including Series A. There were 60 new Series A deals in Q1 2022 versus about 80 per quarter in 2021. The reduced deal pace this quarter, though similar to 2020, shows a willingness to invest but at a slower tempo. Diligence is taking longer, so founders should be prepared to extend fundraising periods three to six months for investors looking to close a Series B or later, likely longer for traditional Series A).
  There were 14 "likely to IPO" (LIPO) financings** in Q1 2022, down from Q4 2021 (16 deals) and down 70% from its apex in Q1 2021, evidence of the continued slowdown in "mezzanine pre-IPO" rounds led by crossover investors. However, to put this in perspective, LIPO deals are still on pace with 2019 activity, indicating positive belief in the long-term ability of biopharma companies to go public. However, instead of mezzanine rounds to IPO in three to six months, it may take 12–15 months. Those deals will also have to compete with the still private LIPO deals from the last two years.
  Valuation step-ups saw a step-back in biopharma as poor IPO performance has impacted the heady valuations in 2020 and 2021. The median step-up in Q1 was just 1.4x.*** Top step-ups in Q1 included:
  Concerto (6.1x)
  Satellite Bio (3.4x)
  Endeavor BioMedicines (2.1x)
  Seed/Series A continues to be dominated by platform and oncology companies. The top three Series A financings in Q1 2022 were:
  Affini-T ($175M)
  ArriVent ($150M)
  Seismic ($101M)
  We saw increased (new) seed/Series A investment activity by:
  Healthtech investment slows down but remains robust
  Healthtech investment dollars were down 20% from 2021 activity but still up significantly (about double) from 2020. Seven new unicorns were created in Q1 2022, behind 2021's pace (42 for the year) but well ahead of 2020 yearly activity (9). The largest financings in Q1 included:
  Healthcare navigation company Doctolib ($557M)
  Alternative care company Somatus ($325M)
  Alternative care company Lyra ($235M)
  We saw later-stage players slow investment pace in Q1 2022, but large, later-stage financings persisted:
  Softbank (three deals)
  Tiger Global (three deals)
  Mubadala (two deals)
  The slowdown in later stage investment is not necessarily an indication of volatility but more of a correction in the growth rate based on the outlier year of 2021.
  There continues to be pressure on the sector from the poor public market performance of IPOs and SPACs, and we believe that investment will continue to slow, and valuations will start to be impacted.
  However, at least so far in 2022, valuation step-ups in healthtech have remained robust, with a median step-up of about 3x for the 19 deals we reviewed. *** Top step-ups in Q1 included:
  Homeward Health (10x)
  Health Gorilla (5.5x)
  House Rx (5x)
  Medarrive (5.4x)
  It will be interesting to see how private, well-funded high-valuation companies adapt to the market pressure. Many may be looking at M&A to expand offering/platforms, but will those targets accept equity (possibly overvalued) or will they demand cash? Either way, some of the earlier stage (Series A or B) companies may be acquisition candidates based on overvalued last rounds as access to capital becomes more difficult.
  Seed/Series A deal activity was down about 30% from the previous three quarters, although dollars are relatively flat. Alternative care companies like EmpowerMe Wellness ($100M) and clinical trial enablement deals led large Series A rounds.
  Investors cool on dx/tools
  Dx/tools quarterly investment has been consistent since Q2 2020 at around $3B+ per quarter, driven by a pick-up in private M&A and increased IPO activity over the last few years. However, IPO performance was down in 2021, and access to the public market has shifted to higher levels of revenue and growth rate, especially for dx test companies.
  The top four financings in Q1 were R&D tools companies:
  DNAnexus ($200M)
  Synthego ($200M)
  Metagenomi ($175M)
  Nutcracker ($167M)
  The next three were dx analytics companies that leverage AI and machine learning to help inform patient care:
  Verana Health ($150M)
  Scipher Medicine ($110M)
  Octant ($100M)
  Dx analytics companies continue to see robust investment, building off an increased M&A appetite with seven M&A deals over $50M upfront in 2021 alone.
  We have noted a decline in investment activity in dx test companies, which may be affected by the poor dx tests IPO performance in 2021 and the wane in positive investor sentiment as the pandemic has played out.
  In Q1 2022, private investments in dx test companies totaled only 24 deals and raised just $366M, led by:
  Visby ($100M)
  Sherlock ($80M)
  Tesis Bio ($36M)
  In contrast, the other two subsectors each raised more than $1B.
  The pace of investment by PE, hedge funds, and others such as sovereign wealth) dropped in Q1, but we did see larger ($50M+) dx/tools deals with new investments by:
  Perceptive (two)
  The step-ups in D Dx/tools in Q1 were smaller than in previous years, with a median step-up value of 1.7x.*** Top step-ups in Q1 included:
  BCD Bioscience (3x)
  Creyon Bio (3x)
  Parse Bio (2.9x)
  Octant Bio (2.5x)
  Seed/Series A investment and deal pace were ahead of 2021's activity. The $420M raised in Q1 was about 40% of the yearly seed/Series A total in 2021 and was led by the dx analytics subsector. Two of the top three Series A financings were dx analytics companies:
  Vesalius ($75M)
  Companion Spine ($55M)
  R&D tool company Spatial Genomics ($56M)
  Device investment is stable but with narrow paths to exit
  Device investing remained steady, with Q1 2022 ($1.9B) fitting into the lower end of 2021 activity and just above the high end of 2020. Four of the top 10 deals in device were in non-invasive monitoring:
  GOQii ($60M)
  Athelas ($59M)
  Beta Bionics ($57M)
  Podimetrics ($45M)
  There were ten deals in Q1 that had post-money values above $200M. Athelas, Distalmotion, Reflexion and Cerepedics all closed new rounds in Q1 valued at $700M+, which may come with caution with the pull-back in the IPO market. Despite these high valuations, overall step-ups in device for Q1 2022 were lower, with a median step-up of 1.3x, *** which included two down rounds (Nalu and Neo). Top step-ups in Q1 included Koya (3.3x) and Podimetrics (3.2x).
  We think the device IPO market will continue to be challenged in the short term, with the bar raised on both revenue and growth to go public. The higher standard to go public could morph into complex, private financing for many newly commercial-stage companies that raised capital in 2020 and 2021 at mid to high $100M post-money valuations.
  The M&A world in device has taken a turn for the better with a much larger group of acquirers than ever before and strong M&A activity in 2021. Based on median private M&A deal sizes over the past few years in the low to mid $200Ms, achieving a competitive exit for highly-valued private device companies and their late-stage investors may be challenging. On the positive side, traditional venture capital is around to support the continued financing of later-stage device companies. It just may not be at an attractive up-round valuation.
  Notable late-stage investors active in Q1 included:
  Pura Vida (two deals)
  EW Healthcare
  Seed/Series A device investment is down from 2021, although dollars and deals are higher than 2020 totals. Three of the top 10 largest Series A deals were in NIM.
  The innovation economy, specifically healthcare, is continuously shifting. Here are a few points to keep an eye on in the months ahead.
  Most traditional venture investors have freshly closed funds to deploy, so while we predict a slow-down in pace it will still be at historically high levels.
  Valuation pull-back for later-stage deals, likely resulting in an increase in insider rounds.
  Most active later-stage, non-venture investors will pull back their investment pace, but won't exit the space.
  Continue to monitor non-venture investors and their support of previous investments. Many of these high-valued companies that were financed in 2020 and 2021 will likely come back to the private market in late 2022 and 2023.
  At SVB, we are a key part of the life sciences and healthcare ecosystem and will closely monitor these emerging market trends. Stay tuned to SVB.com.
  If you have not read Healthcare Investments and Exits: Annual 2021 Report, download it today.
  To learn more about how we support companies in their efforts to advance healthcare, explore our Global Life Sciences and Healthcare webpage and contact us.
  Stay tuned to the SVB site as we will cover the first half of 2022 in greater detail in a new mid-year report this summer.
  Discover how a biopharmaceutical startup is changing the lives of people with psoriasis. Read the case study on how SVB banking services supported Dice Therapeutics' growth.
  The SVB Healthcare Investments & Exits 2022 edition covers data for the entire year of 2021. Watch for the SVB Healthcare Investments & Exits Mid-Year report 2022 releasing this summer!
  Seed/Series A Definition: First financing of $2M or more, regardless of investor. Also includes deals with undisclosed dollar amounts if the investor is an institutional investor or large corporate.
  *Preliminary Data from PB. We have noted that a number of deals in PB get added weeks or months late, meaning that there will be deals that get added to this data set over time. We believe this analysis is directionally relevant.
  **LIPO financings (Likely to IPO) tracks $40M+ financings with one or more of the top 15 most active crossover investors as new investors in the syndicate.
  *** Valuation steps-up/down calculated based on available information from PB and measures the pre-money valuation for the Q1 2022 financing divided by the post-money valuation of the most recent financing completed in either 2020 or 2021. The valuation data on PB for these deals represented between 7-10% of the total Q1 financings per sector, so to be taken as an anecdotal note.