Investment in Health Startups Drops

The medical industry is seeing major changes in investment in the post-pandemic era and predicting the will of investors is… well, unpredictable. VC’s expectations do not always match the market’s – a trend made clear by the turbulent funding levels in medical technology over the past few years.
 
As COVID-19 continued to affect investment across industries in 2021, many startups in health technology saw a year of record-breaking funding. According to Rock Health, the year’s total funding of 729 deals among US-based digital health startups reached $29.1 billion, averaging a deal size of $39.9 million. That is nearly double 2020’s $14.9 billion. 
 
But hardware did not fare as well as software, even amidst a global shortage of crucial medical equipment such as ventilators, dialysis machines, testing supplies, and personal protective equipment that led the EU and the U.S. to take extraordinary policy actions and export controls. It’s hard to believe that in Q2 of 2020, at the height of uncertainty regarding strained hospital capacity and equipment availability, the medical technology industry suffered about a 50-85% decline in revenue.
 
The Medical Technology Association of India (MTal) says that the elective procedures, which drive a significant portion of demand for medical devices, impacted that revenue stream. These elective surgeries were far less common in most regions (if occurring at all) during the pandemic. Despite the decline in device funding, venture financing in health technology overall increased 67% from 2017 to 2021, reaching a 2021 quarterly average of $7.1 billion. But the post-pandemic decline has already begun, with the first quarter of 2022 raising $6 billion and registering about a 15% decrease from the year prior.

Why the Decline?

The pandemic became a cause for the average investor to rethink their strategies. For a period of time, there was a clear priority to back health tech startups, but it’s likely that financiers are looking ahead to what sectors and technologies will field the next group of unicorns.
 
Medical technology is known for both its risk and a lengthy and costly R&D process, not to mention the regulatory checkpoints that have to be satisfied before moving to market. It’s reasonable to assume, now that the coronavirus frenzy has mostly subsided, that investors are looking to shift their money toward ventures that come with fewer roadblocks and risks and quicker turnaround on capital.
 
It also doesn’t help that the first quarter of 2022 was particularly tumultuous, with the Russian invasion of Ukraine, supply and energy disruptions, and other factors coming together to push many publicly traded digital health companies down 9% on the Nasdaq stock market. 
 
If medtech companies want to continue driving investment, they will likely need to expand both their scope and capabilities. Luckily, there is no shortage of opportunities to innovate in the field. Care is shifting away from traditional inpatient settings, medical technology is becoming more sophisticated, and there are endless possibilities for ecosystem data, analytics, patient comfort, and countless other relevant technological advancements that will follow suit.
 
Investment in medtech is critical for improving the health care system as a whole. The collective experiences of the COVID-19 pandemic and its noticeable ties to poverty and inequality have pushed the topic of equitable medical care access and treatment to the top of journal headlines and political campaign points. But the pandemic also proved that modern healthcare innovation has the capability to save lives during medical crises.
 
While some investors are shying away from the complexity of the medical technology field, others will stay to place their bets on who will emerge as the next dominant players in this fragmented market and reap the rewards.
 

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Jake Hare is a former homeless teen, proud Army veteran, and founder of Launchpeer, an incubator program focused on early-stage startups. Launchpeer’s works with entrepreneurs to implement their formulaic, data-driven system that guarantees to get them from napkin sketch idea built, launched, and funded while avoiding the pitfalls that kill most startups. Jake got his start in entrepreneurship at a young age, selling artwork to friends for lunch money before moving on to the big leagues helping manage projects for large Fortune 500 companies and organizations such as Coke and the Department of Defense. When he’s not living the entrepreneurial dream helping others build their startups, Jake enjoys spending time in his hometown of Charleston, SC with his wife and 3 young children, and also tries his best to catch a wave on the Carolina coast.