Medical Alley Q3 Investment and Ecosystem Report

October 21  

Medical Alley is the global epicenter of health innovation and care. Companies that succeed here change the face of healthcare as we know it, building great businesses and powering Minnesota’s economy along the way. This ecosystem is more than just a cradle for early-stage companies or the sole domain of established market-leaders, it is a place where companies at every stage can get what they need to grow.

That’s why, starting this quarter, this report will offer a more holistic look at the Medical Alley ecosystem rather than focusing exclusively on rounds raised. This is not to diminish the importance of the investment figures themselves, but to contextualize them within the full business lifecycle.

Medical Alley companies grew rapidly in the third quarter using a diverse set of pathways, illustrating the virtually unlimited potential for advancement present here for companies at all stages. Giants like Baxter Health, Cantel Medical, and Ecolab acquired smaller partners to help them advance in new verticals, while Sansoro Health and Datica merged to form a best-in-class interoperability solution that maintained its roots in Medical Alley. Imricor raised over $20 million through a listing on the Australian Stock Exchange, and Aldevron sold a majority stake in the company to private equity firm EQT. Looking at traditional investment, startups raised $70,755,425 last quarter, bringing the yearly total for companies in Medical Alley to $332 million.

M&A Remains Powerful Growth Vehicle for Medical Alley Leaders

Medical Alley companies maintained their appetite for acquisitions last quarter, laying out over $1 billion across eight acquisitions, led by Cantel Medical’s acquisition of device manufacturer Hu-Friedy for $775 million. The deal strengthened Cantel’s existing business in reprocessing and infection prevention and give them deeper roots in dental products. The deal may signal the beginning of a trend as Ecolab’s first acquisition of Q4 — Melbourne-based Gallay Medical & Scientific — also has operations both in traditional health technology and in dental care.

The largest acquisition of the quarter was the closing of Boston Scientific’s $4.2 billion acquisition of BTG, which was announced and accounted for previously and is therefore not included in the quarterly total. The deal is already showing a material impact on Medical Alley, as Boston Scientific announced an expansion of both square footage and headcount at their Maple Grove facility.

Angel Tax Credit Program Returns, Angel Investment Jumps 44%

Thanks in large part to the reinstatement of the Angel Tax Credit Program, there was a sharp increase in the number of seed- and angel-stage companies receiving last quarter. 22 companies claimed credits in Q3 worth a total of $1.8 million, meaning the program generated $7.3 million in total investment. Of the 22 companies that claimed credits, 11 were healthcare-related; they received over $1 million in credits.

In short, the early signs are quite good: Companies raising angel rounds rose 44% from Q2 to Q3 and DEED officials were pleased with the state of the pipeline of companies applying for credits already in Q4. The reinstatement of the ATCP and the founding of Launch Minnesota are two strong shows of state support for Minnesota’s angel- and seed-stage companies; there is more work to do to shore up the foundation of the startup community, but these two programs are a promising start.

New Funds Point to Medical Alley’s Improved Profile

Two new funds opened last quarter, yet another sign of Medical Alley’s rising stature as a startup hub. Vensana Capital closed their inaugural fund, oversubscribed at $225 million and focused on medtech, led by veteran VCs Justin Klein and Kirk Nielsen. Klein and Nielsen have invested in Medical Alley companies like Metavention, Nuvaira, and Relievant Medsystems in the past and both are familiar with the landscape.

The other new fund, announced last month, is the second for Matchstick Ventures. Though the new $30 million fund isn’t earmarked for medtech alone, partners Ryan Broshar and Natty Zola have shown no fear of investing in the space as demonstrated by previous investments in digital health companies like LearnToLive and Player’s Health.

The new funds represent continued positive movement in the availability of capital for Medical Alley startups at a variety of fundraising stages, as well-respected firms like Arboretum Ventures, Brightstone Venture Capital, Revolution Capital, and Town Hall Ventures have all increased their activity in Medical Alley since 2017. Improved access to capital is also indicative of recognition from VCs that investing in companies founded in talent-rich areas with backyard access to strategic investors is a great way to get capital into investible companies at sensible rates, increase the probability of a strong return, and redeploy the gains into a new startup efficiently. 

Strong production for angel- and seed-stage companies with a pipeline for continued growth and two new investment funds show that the future of Medical Alley’s ecosystem is in great shape, while billions more in M&A shows that this isn’t just a cradle that early stage companies outgrow, it’s a place where companies of all stages are thriving.

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