Minnesota med-tech and health care companies are seeing a healthy increase in startup investments so far this year as the industry recovers after financing took a nosedive in 2023.

But investors still remain selective about what they will support.

“If you talk to the [venture capitalists] I’m talking to, what you hear is, ‘It’s feast or famine.’ There’s multiple offers on certain things and then none on a lot of other things,” said Stacey Pugh, CEO of Plymouth-based Endogenex.

Endogenex has a lot to celebrate. In the largest Minnesota med-tech financing deal of the year, the company announced in June it raised $88 million and will use the funds to complete a pivotal clinical trial for its ReCET device, which uses pulsed electric fields as a treatment for Type 2 diabetes. Pugh said a future initial public offering (IPO) is a possibility.

“Given the pressure on funding, I think people are going to be looking hard at not only ‘is your market attractive?’ but ‘what’s the confidence level that people can execute in this environment?’” Pugh said of potential financial funders.

Pugh said Endogenex offers transformational technology for an underserved medical need, an attractive combination for investors. In the U.S., there are 38 million patients with diabetes, and Type 2 diabetes accounts for most cases.

In its analysis of first-quarter U.S. med-tech financing, J.P. Morgan found “early signs of recovery” this year following 2023, a recent low point for the sector. Medical investments have been in decline since 2021. The sluggish pace of IPOs in the sector has also been a concern.

There was a total of $5.5 billion of med-tech venture investments in the first quarter of this year, an increase of 45% from a year ago.

A report by PitchBook and the National Venture Capital Association tracked $226.9 million in second-quarter venture capital investments in Twin Cities medical and health care companies, an 83.7% increase from a year ago. It’s the strongest second-quarter showing in PitchBook records back to 2019.

Maple Plain-based Integrity Orthopaedics raised $20.6 million in a Series B financing round co-lead by Piper Sandler Merchant Banking, a new investor to the company. Integrity has developed a system to reduce re-tears after rotator cuff surgery.

“We felt going into it that the market was tough,” said Thomas Westling, CEO of Integrity.

Existing investors were bullish.

“Our Series A investors, almost 100% of them reinvested in Series B,” Westling said.

Westling said investors saw his previous experience with Rotation Medical as an asset. Rotation Medical developed a collagen scaffold for rotator cuff disease. UK-based Smith & Nephew later acquired Minnesota-based Rotation Medical in 2017 in a deal worth up to $210 million.

Investors are also noticing a similar uptick in business.

“We are seeing more opportunities. Our pipeline is more full today. I’d say that’s very positive,” said Amrinder Singh, a partner with Edina-based Vensana Capital, a venture firm focused on med-tech and health care investments.

Vensana co-led a $42.5 million financing round for Eden Prairie-based Elucent Medical, a surgical tracking firm, and led a $27.5 million deal for Roseville-based iVEAcare, which is developing neuromodulation, electrical stimulation technology that targets specific neurological sites.

“I do think there’s more capital available. We are starting to see an uptick in [mergers and acquisitions] and, I also think, the IPO markets,” Singh said.

Mergers and IPO deals attract investors as they can be “exits” that bring returns on investments.

San Francisco-based HM Venture Partners has invested in several Minnesota medical startups. Robert Luo, founding and managing partner of HM, previously worked for the Mayo Clinic.

“In terms of deal flow … it’s busier. More deals are available,” Luo said of the investment climate this year.

Smaller companies are also benefiting from revived interest in med-tech and health care-related investments.

“We found plenty of interest,” said Steve Pontius, CEO of Minnetonka-based HealtheMed, of the company’s recent bid to raise financing.

However, some potential backers found the company too small to support, Pontius said. HealtheMed raised $7 million. The health tech firm allows Medicaid waivered patients better access to home health care through its telemedicine platform.

“I think people are very cautious about their investments,” Pontius said.

Venture capitalists won’t work for every company.

“If you’re a true startup, you’re way better off looking for angel investors to start,” Pontius said.

Medical Alley estimates that, at any given time, there are approximately 1,000 health-related startups in the state.

The path to securing approval for new products from the U.S. Food and Drug Administration is time-consuming, expensive and sometimes unpredictable. Without FDA approval, companies have nothing to sell and no money coming in the door.

Medical Alley said it’s too early to say if encouraging signs in the market are here to stay.

“The increase in private capital and [mergers and acquisitions] activity in [the second quarter] is a promising sign that the market is beginning to recover,” said Roberta Antoine Dressen,chief executive of Medical Alley, in a statement. “We must continue to attract funding to sustain this momentum.”