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  • Lloyd Price

2024: The Year all the 'Tourist" Investors leave the HealthTech markets?



Exec Summary:


Tourist investors defined as 'generalist' and 'crossover' investors have slowed down their funding of Healthcare Technology companies significantly in the last 2 years and their presence has definitely diminished compared to the initial surge in 2020 and 2021. Here's a breakdown of the situation:


The influx and its decline:


  • Early 2021: HealthTech saw a boom in investment from generalist and crossover investors, often dubbed "tourists" due to their lack of deep expertise in the sector. This was driven by factors like:

  • High valuations: HealthTech companies were attracting high valuations, creating potential for quick returns.

  • FOMO (Fear of Missing Out): The hype surrounding the sector fuelled a rush to invest, even for those with limited knowledge.

  • Late 2022 and onwards: This trend cooled down significantly:

  • Market correction: Valuations across various industries, including HealthTech, plummeted, making investors more cautious.

  • Increased scrutiny: Concerns about profitability and sustainability in some HealthTech companies led to stricter investment criteria.

  • Shifting focus: Investors started prioritising sub-sectors with clearer paths to profitability and addressing validated needs.

Current state:


  • Specialised healthtech investors: They remain active, focusing on areas with strong potential and proven value propositions, like digital therapeutics, AI-powered diagnostics, and telehealth solutions.

  • Strategic investors: Healthcare companies and institutions are increasingly investing in startups that complement their offerings or address specific challenges they face.

  • Generalist and crossover investors: Some remain engaged but are much more selective, focusing on companies with clear profitability paths, strong leadership, and proven traction.

Key takeaways:


  • Shifting landscape: The type of investors and their focus areas have changed significantly.

  • Tourists' retreat: Many "tourists" have left due to the market correction and increased scrutiny.

  • Selective engagement: Remaining generalist and crossover investors are more cautious and selective.


Overall: 


While the initial hype has subsided, the HealthTech market still attracts investment, but from more specialised and discerning players. Opportunities remain for startups with strong fundamentals and solutions that address real problems in the healthcare system.


Corporate Development for Healthcare Technology companies in EMEA


Healthcare Technology Thought Leadership from Nelson Advisors – Market Insights, Analysis & Predictions. Visit https://www.healthcare.digital 


HealthTech Corporate Development - Buy Side, Sell Side, Growth & Strategy services for Founders, Owners and Investors. Email lloyd@nelsonadvisors.co.uk  


HealthTech M&A Newsletter from Nelson Advisors - HealthTech, Health IT, Digital Health Insights and Analysis. Subscribe Today! https://lnkd.in/e5hTp_xb 


HealthTech Corporate Development and M&A - Buy Side, Sell Side, Growth & Strategy services for companies in Europe, Middle East and Africa. Visit www.nelsonadvisors.co.uk  




Who were the largest 'generalist' and 'crossover' investors into Healthtech?


According to Atomic Ventures, global HealthTech funding reached $141 billion in 2021, with a significant decline in 2022 due to the market correction.CB Insights reports that digital health funding in the US peaked at $29.1 Billion Q4 2021, with a downward trend since then.


Estimated Contribution:


  • While pinpointing a precise figure is difficult, estimates suggest that "generalist" and "crossover" investors contributed a substantial portion of HealthTech funding in the earlier years (2018-2021), likely exceeding 50%.

  • This aligns with the observed surge in HealthTech investment activity during that period, driven by factors like high valuations and the "gold rush" mentality.


Recent Shift:


  • With the market correction and increased scrutiny, the contribution of "generalist" and "crossover" investors is likely to have decreased in 2022 and beyond.

  • More specialized HealthTech investors and strategic players are now driving investment activity, focusing on areas with clearer value propositions and paths to profitability.


Generalist Investors:


  • SoftBank Vision Fund: Known for large, high-risk investments across various sectors, including some HealthTech ventures like Guardant Health and Flatiron Health.

  • Tiger Global Management: Known for investing in fast-growing tech companies, including some HealthTech startups like Livongo Health and Oscar Health.

  • Andreessen Horowitz (a16z): A prominent venture capital firm with investments in both tech and healthcare, including HealthTech companies like Theranos (since collapsed) and Grail.

  • Sequoia Capital: A well-established VC firm investing in various sectors, including HealthTech startups like 23andMe and Clover Health.

Crossover Investors:


  • Fidelity Investments: Has a long history in both public and private markets, making crossover investments in HealthTech companies like Livongo Health and Clover Health.

  • T. Rowe Price: Primarily a public market investor but has made some crossover investments in HealthTech companies like Invitae and Exact Sciences.

  • BlackRock: A major asset manager with increasing activity in private equity, including some HealthTech investments like Flatiron Health and Guardant Health.

  • Baillie Gifford: A Scottish investment management firm known for long-term, concentrated bets, including holdings in Illumina and Pacific Biosciences (HealthTech-related).



Why have all the generalist and crossover investors stopped investing in healthcare technology?


While it might seem like all generalist and crossover investors have left the healthcare technology (HealthTech) market, the reality is more nuanced. They haven't completely abandoned it, but their presence and approach have certainly changed significantly compared to the initial boom in 2021.


Here are some key reasons for this shift:


Excitement to Caution:


  • Market Correction: The overall market downturn in late 2022, impacting valuations across various industries, led investors to exercise caution. HealthTech, once seen as a high-growth haven, was not spared.

  • Scrutiny and Skepticism: Concerns arose about the profitability and sustainability of some HealthTech companies, prompting investors to take a closer look at fundamentals beyond just high valuations.

  • Shifting Focus: Investors are now prioritising sub-sectors with clearer paths to profitability and addressing validated needs, like digital therapeutics or AI-powered diagnostics.

Beyond the Hype:


  • Limited Understanding: Many "tourist" investors lacked deep sector expertise, making them vulnerable to the market shift and unable to confidently navigate the complexities of HealthTech.

  • Unrealistic Expectations: The initial hype may have inflated expectations for rapid returns, which weren't always met, leading to disappointment and withdrawal.

  • Diversification Strategies: Investors may be diversifying their portfolios away from riskier sectors like early-stage HealthTech, especially with more established options available.

The Evolving Landscape:


  • Specialized Investors Remain: Dedicated HealthTech investors with deep understanding of the sector continue to be active, focusing on promising areas with proven value propositions.

  • Strategic Partnerships: Healthcare companies and institutions are increasingly investing in startups that complement their offerings or address specific challenges they face.

  • Selective Engagement: Some generalist and crossover investors remain involved but are much more selective, prioritising companies with clear profitability pathways, strong leadership, and proven traction.

The Takeaway:


  • The HealthTech investment landscape is evolving, prioritizing focused, value-driven approaches.

  • While "tourist" investors have largely retreated, opportunities remain for startups with strong fundamentals and solutions addressing real needs.

  • Adapting to the current climate by demonstrating clear value propositions and a path to profitability is key to attracting investment.



US Investors view of the UK market


US healthcare technology investors are increasingly viewing the UK market with cautious optimism, seeing it as a promising but complex opportunity. Here's a breakdown of their perspective:


Positives:


  • Large and growing market: The UK healthcare system is the fifth largest in the world, with a population of over 67 million and a projected annual healthcare expenditure of over £250 billion by 2025. This translates to a significant market potential for healthtech solutions.

  • Government support for innovation: The UK government has shown commitment to digital transformation in healthcare, launching initiatives like the NHS Long Term Plan and the Digital Health Fund to support innovation and adoption of healthtech solutions.

  • Strong research and development: The UK boasts a vibrant research ecosystem for healthcare, with renowned universities and research institutions contributing to advancements in areas like genomics and AI.

  • Talent pool: The UK has a well-educated workforce with expertise in healthcare, technology, and entrepreneurship, providing a potential pool for startups and investors.


Challenges:


  • Complex regulatory environment: The UK healthcare system is highly regulated, with different rules and procedures compared to the US. This can add complexity and cost for US investors entering the market.

  • NHS procurement process: Navigating the procurement process within the NHS can be challenging due to its bureaucracy and lengthy timelines.

  • Data privacy concerns: Stricter data privacy regulations in the UK, like GDPR, compared to the US, can pose challenges for data-driven healthtech solutions.

  • Smaller market size: While large, the UK market is still smaller than the US, limiting the potential scale for some healthtech solutions.


Overall, US healthcare technology investors see the UK market as:


  • An attractive opportunity with significant potential: The size, government support, and talent pool make the UK a promising market for innovative healthtech solutions.

  • A market requiring careful consideration: The complexities of the regulatory environment, procurement process, and data privacy need to be carefully navigated.

  • A market best suited for specific types of solutions: Solutions addressing unmet needs within the NHS, leveraging the UK's strengths in research, or targeting specific patient populations might be more successful.


Corporate Development for Healthcare Technology companies in EMEA


Healthcare Technology Thought Leadership from Nelson Advisors – Market Insights, Analysis & Predictions. Visit https://www.healthcare.digital 


HealthTech Corporate Development - Buy Side, Sell Side, Growth & Strategy services for Founders, Owners and Investors. Email lloyd@nelsonadvisors.co.uk  


HealthTech M&A Newsletter from Nelson Advisors - HealthTech, Health IT, Digital Health Insights and Analysis. Subscribe Today! https://lnkd.in/e5hTp_xb 


HealthTech Corporate Development and M&A - Buy Side, Sell Side, Growth & Strategy services for companies in Europe, Middle East and Africa. Visit www.nelsonadvisors.co.uk  




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