Investing in medtech’s ‘missing middle’

Medical device company RenovoRx listed on Nasdaq in August 2021, raising $16.7m at a valuation close to $80m. By the second half of 2022, its share price was down 80 per cent. Unfortunately, this is a familiar story across pre-commercial medtech companies since 2021, when medtech venture financing peaked at $22.1bn.  

Following a decade of easy capital, aggressive interest rate hikes led to an exodus of investors from companies with high capital requirements and long pathways to profitability. Companies lacking regulatory or commercial proof points were heavily penalised at a time when they needed the most capital — the misfortunately placed ‘missing middle’.

But 2025 is on track to be the sector’s best funding year since the 2021 boom and subsequent bust, according to PitchBook, with $8.5bn already invested in the first half of the year.

There has, however, been a striking shift in the destination for those dollars. Early-stage rounds have lost significant share of total medtech funding, shrinking from roughly a quarter to just 15 per cent. Growth funding (Series E and beyond), by contrast, has nearly doubled its share over the same period and now accounts for almost half of all funding.

At OIC we see this directly: syndicates form rapidly for companies with commercial proof points in hand. Companies like RenovoRx are still caught in the funding landscape’s ‘missing middle’, facing shrinking investor appetite, tougher terms, or closed doors altogether.

History shows this cycle of scarcity and survival can be an opportunity for outsized returns. In the aftermath of the global financial crisis, EY’s Pulse of the Industry 2010 reported that companies in the ‘missing middle’ lost funding share disproportionately, falling from 25 per cent of VC dollars in 2008 to 16 per cent in 2010.

Conversely, late-stage companies’ funding share grew from 52 per cent in 2008 to 68 per cent in 2010 as investors concentrated capital in companies with near-term revenue visibility.

Breakthrough devices

The Medtech companies that weathered the post-GFC squeeze went on to deliver some of the most successful exits of the following decade, from breakthrough cardiovascular devices to minimally invasive surgical tools. Once proof of commercial traction was obtained, the survivors commanded disproportionate rewards. SVB data shows 88 per cent of healthcare start-ups raising after a down round in 2023 went on to achieve an up round at their next financing, with a median 46 per cent valuation uplift.

After all, the fundamental risks facing pre-approval medtech — regulatory clearance, reimbursement, commercial adoption — are constant. What shifts is the market’s pricing of these risks.

For most investors, including family offices and private clients, medtech remains a sector defined by long development cycles and uncertain timelines. For generalist investors, the middle ground may always be out of reach. For specialists, it is precisely where the richest returns can be found.

The middle stages of medtech development are where transformative technologies are stress-tested: surgical robotics platforms moving out of the lab, diagnostics advancing from prototypes to regulated products, imaging technologies undergoing large-scale trials.

Survivors who manage to clear reimbursement hurdles emerge leaner, better capitalised, and better positioned for outsized value creation. Expertise in reimbursement pathways, health-economic validation, and clinical adoption is essential to separating winners from those that will fail to make it through the bottleneck. Of course, not every company that survives a flat or down round will emerge stronger. Some will stumble at the final hurdles of reimbursement or adoption. Others will find themselves overtaken by rivals.

Robust payments

When funding is scarce at this point in the lifecycle, the risk that promising technologies will stall grows, potentially limiting the pipeline of healthcare innovation that the industry is built on. However, there are encouraging signs that the cycle is beginning to turn.

Exit markets are reopening for validated assets. In the first half of 2025, $11.3bn in                                                                                                                               medtech M&A was announced, licensing activity was robust, with upfront payments at near-record levels, and the IPO window looks to be cautiously reopening. Already in Q3 we have seen Terumo’s $1.5bn acquisition of OrganOx, an Oxford spinout backed through its regulatory and adoption hurdles by OIC (representing a 10x uplift from the ‘missing middle’ stage), and HeartFlow’s IPO which raised $450m and reached a valuation above $2.7bn (a 6x uplift from the ‘missing middle’ stage).

 These deals confirm that once reimbursement barriers are cleared, both strategics and public markets are willing to engage at scale. For pre-commercial companies approaching these inflection points, the potential for rapid valuation uplift is high.

For allocators willing to partner with experienced specialists, the ‘missing middle’ can present some of the most compelling risk-adjusted opportunities. The key is to identify companies with credible reimbursement strategies and robust clinical validation.

As interest rates ease and capital begins to flow back into growth assets, the window for outsized gains in this overlooked segment will narrow. For family offices and private clients with patience and the right partners, now is the moment to act.

Hector Neill-Edwards, Investment Associate at OTIF Ventures