It comes as no surprise, but the real numbers still sting. The market for venture capital investments slowed dramatically during the first quarter of 2009 – down 51% compared with 1Q08. But the door didn't slam shut completely.

Dow Jones VentureSource (San Francisco) has reported that the U.S. venture capital industry continued to contract during 1Q09, with a $3.90 billion investment overall in U.S. companies, a 50% decline from the nearly $7.78 billion invested in the same period in 2008. Healthcare company investments fell nearly 34% to $1.35 billion for 118 deals in 1Q09 compared with $2.04 billion in 162 deals during 1Q08.

But medical device companies sunk even lower. Investments fell from $972 million for 74 deals in 1Q09 to $477 million for just 42 deals in 1Q09. By comparison, biopharmaceutical investments slipped just 21% from $918 million in 69 deals during 1Q08 to $723 million for 56 deals in 1Q09.

"It's most likely that the time that it takes venture capitalists to close a deal is going to increase," Jessica Canning, director of Global Research for Dow Jones VentureSource, told Medical Device Daily. "The deals are not on hold, but it's taking much longer. Some of these deals will go away. Some companies can't afford to wait. But usually the best deals are made in these down cycles. A lot of these deals that are getting through are the strongest companies. I don't think it will be a permanent contraction. It's just a short term pause in investments."

Given the nature of VC investing, it's not a surprise that the market has pulled back significantly. "Once the VCs invest in these companies they need to hold for four to five years," Canning said. "So they are taking a moment before making more long-term investments."

Interestingly, medical software and healthcare information services companies saw a bit of an increase, closing 14 deals valued at $72 million for 1Q09 compared with 11 deals valued at $65 million during 1Q08, possibly reflecting the new administration's focus on technology improvements for the healthcare sector, such as electronic medical records.

Despite the sector-wide reduction of investments, one medtech company's deal ranked as the fourth highest for all U.S. deals.

Ardian (Palo Alto, California), a privately held developer of the Symplicity, a catheter-based medical device to treat hypertension, raised $47 million (MDD, March 29, 2009). The runner-up in the medtech sector was Atritech (Plymouth, Minnesota), which completed a $30 million round of financing (MDD, March 27, 2009) to fund its mechanical alternative to blood-thinning drugs for people with atrial fibrillation (MDD, August 21, 2008).

Canning said this a reflection of the trend to fund only later stage investments and therapeutic devices.

"Most of the deals that closed in the 1Q09 went to later-stage investments," she said. "And, most of it continues to go to therapeutic devices. Specifically, 24 deals were in minimally or non-invasive therapeutic devices, which is on par with 1Q08. Overall you see a drop off in patient monitoring and surgical devices. We saw a pretty big decrease here in deal flow and the amount raised. Patient monitoring raised $191 million in 1Q08 and this year it was down to $17 million for the 1Q09."

Still, minimally and non-invasive technology companies didn't fare well by comparison to the previous year. During 1Q08, those companies raised $237 million. This quarter it was down to $139 million.

The median amount raised for each deal in medtech dropped significantly, even more than the rest of the healthcare industry this quarter at $5 million per deal compared to $10 for the same time last year.

"For medical device companies we saw the biggest pullback in first-round financings: 31 deals in 1Q08 and only 10 during 1Q09," she said. "That's definitely significant. Healthcare investors are holding back on brand new investments. There's no way to tell if that's going to be short term or long term."

The multi-million dollar question, of course: What will it take to prompt a turnaround?

"One thing that's very important for healthcare companies is the liquidity environment," Canning said. "As much as venture capital looks to create the new technologies of the future, they need a return on investment and the way these do that is with initial public offerings or acquisitions. We need to see a sustained recovery in the public markets to open up venture capital again. Once you start to see companies go public again it will lead to more deals. When major acquirers start to stabilize, they can start to look at acquisitions. We're looking for normalcy in the market to return. I think VCs will continue to invest in the strongest companies and make other select investments."