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Investments in health technology startups are declining

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Investments in health technology startups are declining

Jake Hare

By Jake Hare, Founder and CEO, Launchpeer.

The year 2021 saw a global slowdown in the venture capital market that impacted the broader startup ecosystem, regardless of company size and growth phase

In the first quarter of 2022, Found CB Insights that the $10.4 billion invested in global health technology startups was down 36% compared to the $16.2 billion launched into the global market as of the fourth quarter of 2021. Experts predicted this decline and don’t believe such a drastic recovery as during the pandemic will happen any time soon.

Of course, this is not to say that the health technology industry will see its end. There is still a clear need for innovation and development in the area. Rather, the 2020 and 2021 funding frenzy has stalled and the explanation why is quite simple.

The cooling of investments in health technology has a lot to do with the normalization of COVID-19. It follows a larger trend of investors withdraw from supporting startups after a year of unprecedented cash flow for the companies.

The stagnation in financing of health technology in particular followed a huge shock of investment in response to the COVID-19 pandemic. It makes sense – the perceived value of the industry in the near term skyrocketed exponentially. But now that the immediate need for health technology innovation has waned, VCs are exploring which other industries could be next to explode. And why wouldn’t they? Compared to other companies, the health technology industry has a slower ROI because of the longer and expensive R&D cycles, not to mention the bureaucratic hoops. It is likely that investors will want to shift their companies to markets with a clearer path to return.

Moreover, while startups from various industries that have gone public through Special Purpose Acquisition Companies (SPAC) have increased in the past two years, its recent popularity has declined sharply. Digital health alone has seen the average stock price of SPAC fall by 57% from the third quarter opened in 2021 to the end of the first quarter in 2022. One possible explanation is that the SPAC targets are simply not ready for the public markets. , because on average they are three years younger than their fellow IPOs.

It will be difficult to predict investment in health technology in the coming months. Supply chain and energy disruptions resulting from and in addition to the Russian invasion of Ukraine are triggering market corrections and new variables entering public and private financing equations† But there is no doubt that, in terms of health technology, the funding decline happened long before the last geopolitical conflict.

COVID-19 has prompted a rush to scale up global health technology. Countries and companies rushed to realize the fastest possible production and distribution efforts – and that required a significant amount of capital. Last year saw $7.3 billion deposited into industry to support those efforts. And while companies are still seeing dollars in the field — the $6 billion raised in the first quarter of 2022 is no small number — it appears that the nuanced complexity of the field now outweighs the pace of investment.

However, the health technology industry still has the opportunity to grow in new ways after such a funding slowdown. Regardless of the drawbacks, young and talented individuals will be drawn to mission-oriented startups that have proved vital during the pandemic. There are also plenty of ongoing discussions about ways to make global healthcare more accessible and affordable – and there are plenty of opportunities for startups to innovate and grow in that space. Only time will tell which health technology companies will get funding for what has become a more competitive market in the past year.

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by Scott Rupp healthcare startups, Jake Hare, Launchpeer

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