Increased consciousness around public health and the pandemic-driven demand for innovation saw the healthtech sector get a major cash injection of $750 million between 2019 and 2020. Traditional investors in healthtech have been joined by new entrants into the sector who rightly expect that the digitisation of the healthcare industry, which was accelerated by the pandemic, will create a generation of high-value startups. However, the presence of new investors brings challenges as well as opportunities.
Where these investors may have previously seen healthtech ventures as too capital intensive with too long of a lead time on investment return, they have wisened up to the huge opportunity in the sector, fast. They have seen first hand the seismic changes and the shifts in patterns in how services are being delivered through healthtech, which is already changing people’s expectations in how they want to access their healthcare.
Take Birdie, for example, a homecare software solution that helps older people receive care remotely from home. As the social care sector came under increasing strain during the pandemic it deployed tools to support home care agencies and partnered with the NHS to help identify symptoms. Or Medloop, which creates “self-service” patient apps. It worked with GPs to ensure that patient’s routine care wasn’t missed as access to practices were limited. Greater availability of funding is ultimately positive for proven healthtech companies such as these, and the patients they support.
However, the influx of cash isn’t necessarily all good news. Capital is just one part of the equation for creating a healthtech startup. While it will help keep a company buoyant, it doesn’t change the reality of long timelines and stringent regulation that the majority of the companies face before they can bring a product to market.
Healthtech founders can face a situation where they are in conflict with their backers if they are not familiar with the due diligence and research required in the early stages of development, and are overly eager to get to product launch and exit. This could lead to negative outcomes for all parties – investors, the healthtech company, and healthcare system – because if a product is rushed out it will fail in the competitive and tightly controlled environment of the healthcare system.
The second risk is that we may see funding go to less robust healthtech startups due to investors’ lack of understanding of the sector. The worst case scenario is that, in a livelier and more confusing market of startups, hospitals and caregivers choose the wrong providers and direct already stretched budgets towards solutions that don’t benefit patients. In today’s overburdened healthcare system, this is far from what the doctor ordered.
With increased market maturity and more experience, healthcare professionals have become more discerning in their procurement process, which will mitigate the risks of poor deployments. This market maturity will also inevitably lead to increased competition between digital health providers for contracts and, inevitably, to a consolidation of the healthtech market through mergers and acquisitions.
Consolidation is not a bad thing. It is a natural consequence of competition and, in the majority of cases, M&A is of benefit to both parties involved and the wider healthcare market. Logically we cannot expect a hospital to go through a complicated procurement process for tens of unconnected digital solutions for different use cases, diseases, and patient groups. It is far more realistic to expect a smaller number of digital healthcare providers to deliver multiple solutions.
The strongest solutions that have the potential to benefit the greatest number of healthcare providers and their patients will thrive, either becoming market leaders or exiting to larger healthcare companies who see healthtech startups as an innovation pipeline.
If 2020 was the year that the healthtech investment boomed, 2021 will be the year of post-pandemic consolidation. Healthtech founders should remain optimistic. The adoption of digital healthcare during the pandemic has removed skepticism among investors, healthcare institutions and patients that will never return. Founders will find it easier to gain access to capital, and for those that deliver products that truly benefit healthcare professionals and patients, there is plenty of opportunity in the market.