HSBC’s Venture Healthcare Report: Shake It Off? explores whether companies can, in the words of Taylor Swift, “shake it off” and rebound from what has been a difficult financing and exit market

• 2023 was a year of triage as venture healthcare companies closed insider rounds and focused on existing portfolios, leading to a slower investment pace
• The first half of 2024 did have green shoots with increased investment across every sector, with more new investor-led financings, many at up-rounds
• Companies on dwindling on insider-round cash will need to find new lead investors or consider consolidation and/or shutdown

The downturn in the venture healthcare market has extended into 2024, yet many healthcare companies still secured new investment rounds at robust step-up valuations, with potential M&A and IPO opportunities, according to HSBC’s Venture Healthcare Report: Shake It Off? Conversely, companies with dwindling insider round cash will need to find new lead investors or consider consolidation and/or shutdown.

“Some companies continue to raise large rounds even in the down market, but the key question in 2024 is whether the prevalent insider rounds from 2022 and 2023 will provide enough runway for companies to reach a value-creation event that justifies new investment,” said Lead Author and Managing Director Jonathan Norris. “Most VCs possess substantial new capital available for new investments, and growth investors have become active once again.”

Biopharma

Helped by opportunistic IPOs and a strong private M&A market, biopharma was the bright spot for investment dollars in 1H 2024. Investment doubled 2023 first-financing investment pace and was up 35% overall. Digging deeper, while dollars are up, the number of deals in first-financing actually declined, meaning fewer deals got more money. Many of these deals were venture spin-outs or led by management teams just off successful exits. Overall, there were 51 $100M+ biopharma financings in 1H 2024, with thirty adding a new crossover investor to their syndicate. Southern California emerged as the leader in $100M+ deals at 12, beating Massachusetts (11 deals) and Northern California (9). ​

Healthtech

In 2023, Healthtech investments significantly declined. The trend reversed in 1H 2024, with deal activity rising each quarter. The high volume of insider bridges and round extensions decreased as investors completed their triage and started to rebuild their portfolio by funding new deals. Although investments took longer to finalize, Healthtech experienced a surge in earlier-stage deals, where valuation overhang is less problematic. For later-stage financing, the growth at all costs approach of previous years has evolved. Companies that secured new investors in 1H 2024 were largely ones that demonstrated additional growth potential, adopted capital-efficient models, and significantly reduced burn.

Medical Devices

Med device continued its stable pace of investment, however, there was a surge in first-financing deals and dollars in 2Q 2024, led by strong venture capital syndicates and corporate support. We also noted more PMA focused early-stage investment, especially in neurology. Pivotal trial funding and commercialization for 510(k) cleared products continued to find a combination of VC, growth, crossovers and corporates. Med device had the most down-rounds in 2023, especially in Series B and later rounds, but in 1H 2024 median step-ups for later-stage deals remained above 1x while median pre-money valuations increased across the board. Stable investment, plus good M&A in 2023, positioned med device for strong M&A in 2024, but so far private M&A has fallen flat, with just two notable private M&A deals. ​

DX/Tools

Dx/tools first-financing investment continued its 2H 2023 slide in 1H 2024, down significantly from the previous three years. Investors felt the pressure of a closed IPO market and the fear of finding a series B investor that can bridge to the growth round. However, companies that got to initial commercialization have found that growth investors have come back, participating in six of the highest valued financings in 1H 2024. Valuations for early stage have remained strong, however companies with heady valuations from 2020-2021 are finding flat or down rounds. Private M&A continues to falter. So far in 2024, we have noted just two private M&A deals over $50M upfront.

The HSBC Venture Healthcare Report was written and produced by HSBC Innovation Banking’s Life Science and Healthcare Team, which serves the innovation economy by providing products and solutions to early and growth-stage companies.

“The first half of 2024 provided real glimmers of hope with increased investment across every sector and numerous investor-led financings,” said Katherine Andersen, Head of Life Science and Healthcare, HSBC Innovation Banking. “Our mid-year report takes a deep dive into investment and exit activity, supported by our team’s deep-sector expertise, historical perspectives and data-informed predictions. We are committed to the life science and healthcare ecosystem globally and best serving our clients with our industry knowledge and the strength and stability of HSBC’s global platform.”

HSBC Innovation Banking in the U.S. includes a team of industry veterans and dedicated bankers with deep sector expertise assembled across the country. HSBC Innovation Banking also has teams in the UK, Tel Aviv, and Hong Kong to deliver a globally-connected, specialized banking expertise to support a broad range of innovation businesses and their investors.

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