SAN DIEGO—While biotech and life-sciences firms typically attract venture capital to San Diego, robotics, artificial intelligence and healthcare-related companies received the most dollars in 2017, CBRE first VP Andrew Ewald tells GlobeSt.com.

According to a recent report from the firm, venture capital activity bounced back in 2017 after a slower 2016, thanks to strong back-to-back quarters in investment. The 2017 total was over $1.6 billion, which is the highest deal volume on record for San Diego, according to data from CBRE Research, PwC/CB Insights MoneyTree Report, Pitchbook and Mattermark.
M&A activity was also very high in the region during 2017, including 23 M&A deals in Q4 alone. This figure includes announced or completed deals involving San Diego companies either as the acquirer or the acquired. Additionally, two companies made major stock offerings or IPOs.
In Q4 2017, San Diego firms received $452 million of VC investment, down 4.3% from Q3 2017, but up 161.3% year-over-year. There were 28 deals executed this quarter, on par with the three-year average.

We spoke with Ewald about the drivers behind the increase in venture-capital investment in San Diego and where he sees it heading.

GlobeSt.com: What are the drivers behind this increase in venture-capital investment in San Diego?

Ewald: The drivers at the end of last year were very strong. We were up from $1.2 billion in 2016 to $1.64 billion last year in VC capital, and it was certainly one of the strongest years for San Diego ever recorded. But when you look at fundamentals, you'll see some shifts.

Typically, biotech and life-science companies have been the leaders in receiving VC money, but last year was a record high for software and tech companies. These firms received hundreds of millions of dollars in areas including robotics and artificial intelligence. This has been a neat change for San Diego, where our marketplace is receiving big dollars for companies that are changing for the future.

Also, when you look at who received the funding, biotech had a slower year than normal, and there was an increase in medical-device and medical/healthcare spending. Those are all positive signs of a changing environment; we have a ton of Baby Boomers retiring, which is exploding the medical businesses. This means investors see this as safe investment.

Essentiallyl, we saw increases in tech companies focused on AI and robotics and an increase in medical-device and medical-healthcare based on what's happening in our population. There wasn't an increase in the number of deals, but there was a 28% increase in the amount of funding. There are some really good companies that VC and private equity felt were important for which to provide capital.

GlobeSt.com: Is VC spending expected to continue at the current pace, increase or decrease in the coming months in this market?

Ewald: It's tough to say, but we all feel very confident about the San Diego economy, the market and the diversity of the companies that we're seeing get funded. It's not going into one type of specialty group. That said, some regulatory changes and tax changes could happen, and the stock market has been volatile. But we will still see healthy amount of venture capital and a number of deals coming into the marketplace.

What we've also seen is a real increase in M&A activity, with 23 deals done in the fourth quarter alone. Instead of spending capital to do R&D internally, companies are looking to acquire third-party companies skilled in doing this work for them. It's healthy if you can outsource these functions or acquire companies versus spending money to develop these services inside current company operations.

GlobeSt.com: How does the amount of VC investment in a market relate to that market's general economy?

Ewald: Especially as it relates to San Diego, the economy generally organically grows from within the community. The dollars are coming from companies that started here in San Diego, and that's a good sign. We have the labor here to support that growth, and our technology is really outstanding in the marketplace. It's an incredibly strong indicator of the health of a market to see companies getting really big dollar amounts. We might take a lag into organic job growth in San Diego, but it's usually for the purpose of increasing R&D, which translates to jobs eventually.

GlobeSt.com: What else should our readers know about VC spending in San Diego?

Ewald: There's a high trajectory and a great convergence happening in San Diego between technology, robotics, automated and connected devices, along with healthcare and what that translates to for medical device and research for biotech and life sciences. It's positive to see great growth from the previous year and a diversity in the types of companies that are receiving funding, and we expect this to continue.

Instant Insights /

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