Privately held biotech companies raised more than $2.7 billion during the first half of 2013, a 38.7 percent jump in funding as the stock market and new drug approvals propelled enthusiasm for investment in the sector.

The majority of capital continues to flow to companies developing novel therapeutics. These companies saw a 19 percent increase in capital raised during the first half of 2013, compared to the first half of 2012. Therapeutics developers accounted $1.6 billion, or about one third of the $4.8 billion in total capital raised by U.S. life sciences companies.

Greater investment in privately held biotech companies can be attributed to several factors including the strongest biotech IPO market in the past 13 years; the stellar performance of the biotech sector in the U.S. public markets; new business and funding models for startups helping increase their chances of success; continuing significant regulatory approvals of innovative biotech therapeutics; and the success of biotech drugs in a healthcare market increasingly constrained by rising costs.

Funding for tools and technology companies, a category that includes genomics companies and big data analytics providers, rose 195 percent between the first half of 2013 and the first half of 2012. The increase was largely due to two outsize private equity financings: $150 million for the synthetic biology company Intrexon; and $150 million for Precision for Medicine, a Maryland-based company formed in 2012 to support next-generation approaches to drug development and commercialization. Precision will use the capital to build a platform of services to support companies focused on patient-centered, precision medicine.

Investment in diagnostic startups has also picked up, with capital raised by these companies up 30 percent ahead of the amount raised in 2012.

The majority of capital, however, continues to flow to companies developing novel therapeutics. These companies saw a 19 percent increase in capital raised during the first half of 2013, compared to the same period in 2012. Therapeutics developers accounted $1.6 billion, or about one third of the $4.8 billion in total capital raised by U.S. life sciences companies.

Medical device makers, which accounted for almost 30 percent of the total, saw a 5.1 percent drop in funding compared to last year, with the digital health/healthcare information technology category also about 5 percent below funding levels of the first half of 2012.

While many venture capitalists have moved away from early stage financing, angel investors, philanthropic investors, and Big Pharma has stepped in. University of California incubator QB3 struck partnerships with Bayer and Roche in June aimed at helping the Big Pharma companies source innovation. Earlier in the year, GlaxoSmithKline announced a partnership with Avalon Ventures to source innovation in San Diego.

Looking ahead, it will be interesting to see how the new models play out. For the second half of the year, however, all signs point to a healthier financing environment.