The average size of investments at various rounds
Across the many Healthcare and Life Science projects seeking funding, the general trend is a crescendo round size as the project develops, with roughly a 24-month interval, driven by a growing cash need and backed by the de-risking developments that should be achieved by the venture upon each funding round.
Naturally there is a vast difference in round sizes between the 3 typical areas of MedTech, Digital Health, and Pharma/Biotech. Furthermore, even within each of these categories there are significant differences from one company to the next. For example, among the MedTech segment, round sizes vary heavily depending mainly on;
The complexity of the technology (ie. how much does it cost to build a prototype and show proof of Concept?);
In-house vs outsourced 3rd party manufacturing, and;
Regulatory classification (the more invasive, the more it will be regulated, and the higher will be the cost, especially for future pre-clinical and clinical trials). For example, where a non-invasive wound screening solution raises a €1,5M round to get CE certified (Class 1) and become market ready, a similar stage invasive surgical stent technology (Class 3) is looking at a €15M round to achieve a comparable level of development.
From market data available, we see that in the EU an average seed round in the healthcare space is approx. €0,5M, followed by a €5M series A and a €12M B round. Yet, considering these being average numbers (i.e. keep in mind the aforementioned widespread diversity among segments and product types) and the growing volume of non-dilutive (often government funded) funds being granted, which may have be discounted or removed from data around funding rounds, market numbers should be used with caution. Not even mentioning the significant difference in these numbers across regions, especially the EU vs. USA.
Taking all this into consideration, a more vigorous method of defining and/or evaluating the adequacy of a venture round size is probably in line with the following:
Compare the round to the overall external cash-need during the lifetime of the project (tranched across adequate rounds and triggered by defined development milestones),
Seek similar benchmarking example companies in order to understand how the company compares within their product class.
In addition, it may pay to keep in mind that when defining round sizes, many companies are advised to raise on the upper side of the funds needed. This is to make sure they build in a healthy budget buffer as some milestones might be more tricky to reach and a next round might (also) take more time than expected.
Contribution by
Lourens Verweij, Additio Investment Group
