U.S. healthcare companies had soaked up $23.4 billion this year in venture capital funding as of Sept. 30, already well surpassing the sector's funding in all of 2017, and making up nearly 28% of total U.S. venture capital funding so far in 2018.
That's according to Pitchbook's quarterly report examining venture capital spending in the third quarter of 2018. Last year, healthcare services and systems, healthcare devices and supplies and pharma and biotech amassed $20.5 billion in venture capital funding, with pharma and biotech capturing far and away the largest share of those dollars. Pharma and biotech has made up 62% of venture capital funding so far in 2018.
Across all sectors, the $84.3 billion in deal volume amassed by the end of the third quarter had already surpassed 2017's full-year funding of $82 billion. Roughly 6,500 deals had closed as of Sept. 30, putting this year on track to match the nearly 9,300 deals closed in 2017, according to Pitchbook.
Pitchbook highlighted a trend it calls the new normal: a lot of money flowing into fewer, larger deals. Case in point: The number of deals whose value exceeded $50 million reached 378 rounds as of the third quarter of 2018, already surpassing 292 such deals in all of 2017.
"The trend of high concentration of capital into fewer, larger investments has solidified into the status quo for the U.S. VC ecosystem," the report's authors wrote.
The first three quarters of this year have seen the rise of so-called unicorns, or startups valued at more than $1 billion. Pitchbook counted 39 such deals and nearly $8 billion raised in the third quarter alone. Unicorns are fueling an upsurge in "mega-rounds" of $100 million or more, the number of which has grown 39% over 2017. One example is the at-home fitness equipment maker Peloton, which raised the largest deal in the quarter, valued at $550 million. Pitchbook noted that consumer-focused companies captured nearly 22% of mega-deal capital in the third quarter.
Such mega-deals aren't always a good thing, the report's authors wrote.
"Mega-deals can concentrate risk in fewer companies, and rampant capital availability enables overcapitalization and potentially reckless spending by companies in pursuit of growth," the report said.
On the flip side, the number of deals involving early-stage companies saw a double-digit decline in the third quarter, a slowdown that was even more pronounced among angel and seed deals, where activity fell 26.5% between the second and third quarters.
Jon Norris, a managing director with Silicon Valley Bank, a contributor to Pitchbook's report, said he's watched the amount of money going into Series A deals, a company's first round of venture capital funding, balloon over time. In the past, $25 million was a large Series A, but that's grown over the last couple of years to between $75 million and $100 million.
"And now we're seeing $200 million Series As," he said.
Life sciences, a category that includes pharma and devices, drew fewer, yet larger early-stage deals than the artificial intelligence sector during the third quarter, attracting 109 deals and $2.5 billion in funding, down from its peak of $3.4 billion in the first quarter, according to the report.
Norris, who focuses mainly on the life sciences sector, said biopharma continues to see strong growth in the amount of capital going into deals, while devices are by and large staying stable.
"I think there's a tale of two cities on this," he said. "Biopharma is just going gangbusters, and it's on pace for a record-breaking year. Devices is the stable, well-performing sector. Lots of exits and continued investment, but not what we're seeing in these other sectors."