VCs able to consistently invest in healthcare's largest exit outcomes are a rarity. New Enterprise Associates, OrbiMed Advisors and Alta Partners top the charts with six $500M+ exits each. Here is the data.

Building a billion-dollar tech company is hard, identifying and investing in these companies early is harder still. Our previous brief detailed how exceedingly rare VCs who invest in billion dollar tech exits are.  We wanted to see what these numbers looked like within healthcare venture capital to see if the trends observable in tech carried over to the healthcare sector.  Here is the data.

The Data

Using CB Insights venture capital data, we identified 50 venture-backed U.S.-based healthcare companies that exited (via either and IPO or an acquisition) between 2004 and 2013 YTD with a valuation of at least $500M. To assess past performance, we only included companies that have already exited and not companies with rumored valuations which we track but which can change wildly between financing rounds and ultimate exit.

We then analyzed the investors in these fifty $500M+ exits to understand the trends within Healthcare Unicorn VCs.

The Results

136 VCs invested in these 50 healthcare companies prior to their exits. Of these, 88 (or 65%) invested in only one $500M+ exit since 2004.

The following chart further breaks down these investors by the number of big healthcare exits that they invested in. The first bubble represents the 88 VCs (only 18% of all active VCs) who invested in a single $500M+ healthcare company. This number drops sharply by 75% as we move on to the next bubble as only 22 investors (or 4.5% of all active VCs) succeeded in repeating this feat twice.

As we move to the right, we see three VCs – New Enterprise Associates, OrbiMed Advisors, and Alta Partners – who invested in 6 $500M+ healthcare exits each and who represent a mere 0.6% of all active VCs.

1VCInvestors

The number of large exits in an investor’s portfolio does not necessarily correlate with the investment’s returns as the largest returns from an exit usually go to the investors who jumped in earliest. So in addition to the number of large exits in an investor’s portfolio, it is important to look at what stage a VC made its first investment in those companies.  This is a key driver of Selection Aptitude which LPs look at when analyzing VC funds.

The next charts breaks down the investors based on the stage they invested in these large exits. For example, let us consider the three investors with 6 $500M+ exits each, namely NEA, OrbiMed Advisors and Alta Partners. In all, they represent 18 investments (3 investors × 6 exits, where an investment refers to the aggregate amount invested regardless of how many/which rounds the investor participated in). Of these, 9 or 50% investments were in a Series B round or prior.

This percentage is lower as we move to left on this graph with only 34% of the investors who participated in one large healthcare exit getting in prior to Series B.

2InvestmentsByStageSeriesB

When narrowing the early stage criteria to only include funds who got in at the Series A or seed stage, these numbers decrease across the board. Only 13% of investments made by VCs with one big exit each were made at or before a Series A round. At the other extreme are the VCs with 6 big exits who made a comparable 17% investments at the early stage.

3InvestmentsByStageSeriesA

Methodology/Notes

For companies that exited via M&A, the valuation is simply the amount that the company got acquired for. For a company that went public, the exit valuation was calculated using the closing stock prices on the day of the IPO.

Note that in contrast to our previous piece on tech unicorn VCs where our cut-off threshold was a $1B valuation, we considered a healthcare exit to be big if its valuation was above $500M. In general, private healthcare companies do not hit it as big as tech – only 11 healthcare companies since 2004 have exited with a $1B valuation (versus 45 in tech).

The data comprised of exits that occurred between January 1, 2004, and on or before October 15, 2013. All of the underlying exit and investor data used in this research brief is on the CB Insights Venture Capital Database. Sign up for free below.  LPs wishing to learn more about predictive insights into VC firm quality should visit Investor Mosaic.