Investors May Look Smaller

Industry Benchmark: Part 7 Private Equity/Venture Capital

Private equity and other investors still see many opportunities in the life science and healthcare sectors — and their priorities are showing evidence of subtle changes over time.

The 2017 Nice Insight Life Sciences Private Equity/Venture Capital Investment Survey highlights some interesting trends in the way investors of all kinds currently look at opportunities in the life science and healthcare sectors.1

Despite the high and acknowledged risks, investors — who are typically active in multiple other areas — continue to make substantial investments in this field, mostly in pharmaceuticals, biotechnology and medical devices, although there are indications that this will change to some degree in the next three years.

Wide Investor Base

The respondents to the survey, who all invest in healthcare and the life sciences, were based in North America. They comprise mainly brokers and investment bankers (51%), plus private equity investors (13%), angel investors (3%) and venture capitalists (1%), the remaining 32% being combinations of categories. As well as healthcare and the life sciences, at least 75% and up to 93% are active in other major areas, like technology, energy, consumer and retail, real estate, financials and media/telecommunications.


These companies make investments over a wide range of acquisitions, with 29% saying that their average investment was below $50 million, 16% in the $50 million to $100 million range, 7% at $100 million to $250 million, 23% in the $250 million to $500 million range, 15% at $500 million to $1 billion and the remaining 10% reaching over $1 billion. Over the next three years, 39% said that they will be looking to invest more in smaller companies relative to past transactions.


Of the respondents, 49% prefer to invest at the growth capital stage, as opposed to 22% at the early or start-up stage and 26% at the later or initial public offer (IPO) stage. Only 3% are focused on the seed stage at the very start. The time they typically take to close a deal also varies considerably: 4% take less than one month, with 25% saying one to three months, 30% saying three to six, 17% six to nine and 23% taking nine months or more.

During the ownership phase, investors provide many different forms of support, though no single form is provided by more than half of them. The most common is project management (49%), ahead of marketing and strategy (45%), expert leadership (44%) and key contacts (42%). Offshore manufacturing and international expansion, at 13% and 23%, were the least common options, indicating that investors are looking above all to improve the performance of their companies in existing markets.

Pharma Tops the Rankings – For Now

These companies invest in many parts of the healthcare and life science industry. The most common in the survey was pharmaceuticals (86%), followed by biotechnology and medical devices and equipment (both 71%), healthcare software and technology (62%) and discovery laboratories (59%). Suppliers of all kinds were usually among the least common of the 12 categories, with contract development and manufacturing (35%), diagnostics (also 35%) and pre-clinical and clinical contract research (36%) at the bottom.


Conversely, when asked about their plans for the next three years, pharmaceuticals remain at the top but fall from 86% to 74% of investors, while biotechnology and medical devices and equipment are almost static at 73%. Suppliers are expected to creep up the rankings slightly, with managed care and hospitals falling away slightly. Diagnostics could rocket in importance, from being a target for 35% of investors to one for 55%.

Typically, three to five years is seen as the ideal time frame for holding a company; 45% of respondents said this. The most popular exit strategies at the end of that are sale to a financial or strategic buyer (the options of 36% and 29%, respectively) or an IPO (17%). Exit generally means either exactly that, or retaining a minority: 49% take a 0%-25% stake afterwards, while 28% hang on to up to 50%. Only one-fifth retain a majority stake.


Not surprisingly, North America comfortably ranks the highest for ease of investment among a community largely based there and familiar with it. Next comes Western Europe, with Japan and Korea ranking equally alongside Australia, then Singapore and Southeast Asia fractionally above China. Turkey and the Middle East were a long way last.

Risks and Benefits

High risks were cited as the biggest challenge investors faced, with 58% of them mentioning this, ahead of insufficient data for evaluation (48%), tighter and complex regulations (46%), a complex exit strategy (36%), high investments being needed (also 36%), lack of industry experts to evaluate companies (30%) and the lack of a feedback loop (15%). For all that, 65% of respondents had made over 11 investments in the life science field in 2015.


Asked what were the key drawbacks of companies seeking investment, a very high 67% and 65%, respectively, cited unrealistic projections and inaccurate estimates of capital and resources required for product development as issues. Weak management (55%) and flawed go-to-market strategies (45%) were also common, with accounting issues (29%) far less so. It is thus largely the intangibles that make investors hold back.

Demand for the relevant products and services is regarded as the main market- scenario decision driver for a new healthcare or life science investment opportunity, ahead of the stage of the product or service at the time of investment, market size, the ability to patent the product or service or otherwise make it exclusive, and the competitive landscape as a whole. Established distribution and marketing channels were the least important of the ten named criteria.


A high projected or realized internal rate of return was seen as the top ranking financial driver when considering a new investment opportunity, ahead of a high profit margin, low relative capital investment or early exit potential. When it came to the management team at the acquired company, what mattered above all was their knowledge of the business or industry, their team record and their risk management experience. Being familiar to the investor and educational qualifications counted for much less.


  1. 2017 Nice Insight Life Sciences Private Equity/Venture Capital Investment Survey.



Nice Insight

Nice Insight, established in 2010, is the research division of That’s Nice, A Science Agency, providing data and analysis from proprietary annual surveys, custom primary qualitative and quantitative research as well as extensive secondary research. Current annual surveys include The Nice Insight Contract Development & Manufacturing (CDMO/CMO), Survey The Nice Insight Contract Research - Preclinical and Clinical (CRO) Survey, The Nice Insight Pharmaceutical Equipment Survey, and The Nice Insight Pharmaceutical Excipients Survey.