A recent panel at LSI USA ‘24 highlighted the evolving challenges and opportunities in financing for companies in the medical device sector. As the medtech market adapts to changing macroeconomic conditions, experts provided their critical insights into how companies and investors can effectively navigate this landscape. Here are six key takeaways from our analyst team.

Decrease in Capital Availability

From 2021 to 2024, the medtech market experienced a dramatic reduction in capital. Rebecca Raabe noted, “In 2021, for medtech venture funds, there was $7 billion raised, which has now dwindled to $4.3 billion.” This substantial decrease in available capital underscores the need for medtech companies to adjust their financial strategies and fundraising approaches. With fewer dollars circulating, it is essential for companies to be strategic in managing their finances and pursuing funding opportunities.

Valuation Pressures and Market Corrections

Valuation pressures have been particularly severe in the medtech sector. Paul McCreadie pointed out that during the height of the funding boom, the healthcare IT sector saw inflated valuations due to “an abundance of capital” and the entry of non-traditional healthcare investors. This led to a bidding war that drove up prices. As the market corrects itself, there is now a strong emphasis on realistic valuations and sustainable financial practices. Medtech companies that overextended during the boom years must recalibrate their expectations and operations to align with the current market realities.

Evolving Strategies of Medical Device Investors

The strategies of medical device investors are evolving in response to these market changes. Matthew Schopp emphasized the importance of understanding the specific needs of the target customer and clinical area, whether it’s cardiac, orthopedics, or neuro. He stressed the importance of “understanding what your company is really trying to accomplish with its product and understanding the target customer.” Investors are now more focused on precise milestones and value-creation activities. This shift necessitates a detailed understanding of each company’s unique position and alignment with current market demands.

Anticipated Increase in M&A Activity

The medtech market is expected to see a significant increase in M&A activity. Rebecca Raabe predicted that “the overall sentiment is that M&A activity is going to increase in 2024.” This anticipated surge is driven by large players needing to pursue inorganic growth through acquisitions. With more attractive prices and stabilizing interest rates, companies should prepare for a more active M&A landscape in 2024. This environment presents both opportunities and challenges as companies explore potential deals and strategic partnerships.

Importance of Capital Efficiency

Capital efficiency has become a critical focus for medtech companies. Rick Vondevenne discussed the shift towards being more judicious with spending, advising companies to avoid “growth at all costs” and focus on achieving profitability. He emphasized the need for companies to “do frequent small experiments and look at your data” to make informed decisions that extend their runway and reduce burn rates. In this challenging environment, effective capital management is essential for sustaining operations and navigating the path to profitability.

Renewed Optimism and Future Prospects

Despite the challenges, there is renewed optimism for medtech innovation and investment. Paul McCreadie mentioned that while 2024 may still face valuation difficulties, there is hope in the form of a healthier IPO pipeline and increased M&A activity. He noted, “There is a healthy IPO pipeline of really good quality companies that, when they go out, will get people excited again.” This optimism, coupled with a gradual improvement in fundraising conditions, suggests that companies strategically positioned to adapt to evolving market conditions will be well-placed to capitalize on emerging opportunities.

Full Discussion and More Insights

The full panel discussion was published on LSI’s website, and can be found at the link below:

• Resetting the Scales: Navigating Valuation and Financing Expectations in 2024 | LSI USA '24

To hear more insightful panel discussions on medtech innovation and investment, join us at LSI USA ‘25 on March 17th to 21st 2025 in Dana Point, California.