Fitbit's new move. Apple partnership. Healthcare valuations.
The Outcome Is Income
Venture investing in tech and healthcare are completely different, including when it comes to exit valuations. We analyzed exit valuation trends for both sectors.
*Analysis is of first exits in the US.
The median healthcare valuation tends to be significantly higher than the median tech valuation for vc-backed companies. In 2015 it was more than double. This discrepancy highlights the difference in outcomes between tech and healthcare companies.
In healthcare, the plan for most VC-backed companies is to get acquired by one of the large med device or pharma corporates once you have a commercially viable product, even if it’s post-IPO. The liquidity event happens much earlier in a company life cycle compared to tech, ever see a tech company with a $3B IPO without any products in the market? The value of your assets, intellectual property, and product pipeline are what matter the most, everything else is pretty ¯_(ツ)_/¯. So if a company doesn’t have anything in pipeline worth acquiring, it’s rare that you’ll see a company get acqui-hired (which happens more frequently in tech).
This leads to lots of midsize exits when companies hit clinical milestones, but few small company pickups and almost no massive breakouts. The outcomes in tech are more “barbellized”, a few massive breakouts, but ALOT of small pickups and acqui-hires. This drags the median valuation down. You can see how much larger the biggest exits are in tech, and this is just recently. When was healthcare’s last Facebook sized exit? See the full analysis here.
So who are some of the people trying to reach these kinds of liquidity events in healthcare? We analyzed the most active investors in pharma companies, with the full list on our blog. Hedge funds, VCs, and corporates are all key players here.
We’re going to be diving deeper into the pharma space in our upcoming webinar. Sign up here.