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Exits remain the single biggest headache for HealthTech Venture Capitalists right now

  • Writer: Lloyd Price
    Lloyd Price
  • May 26
  • 4 min read

Exits are a major challenge for HealthTech venture capitalists (VCs) in the current market
Exits are a major challenge for HealthTech venture capitalists (VCs) in the current market


Exits remain the single biggest headache for HealthTech Venture Capitalists right now


Exits are a major challenge for HealthTech venture capitalists (VCs) in the current market. The primary issues stem from a weak exit environment, with muted IPO activity and slowed mergers and acquisitions (M&A).


In 2024, HealthTech exits were significantly down, and publicly traded HealthTech stocks underperformed, forcing VCs to extend investment horizons to 10-15 years. This prolonged timeline frustrates limited partners (LPs) seeking quicker returns, creating liquidity pressures.


Exits remain the single biggest headache for HealthTech VCs right now and here is why based on recent reports market insights and industry trends:


  • Weak Exit Environment: Muted IPO activity and slowed mergers and acquisitions (M&A) are a significant challenge. Many companies that raised large "mega-deals" in the funding frenzy of 2021 have gone out of business rather than going public, leaving founders and investors with limited liquidity options.


  • Extended Investment Horizons: Without viable exit opportunities, VCs are being forced to extend their investment horizons, sometimes to 10-15 years. This creates pressure from their Limited Partners (LPs) who expect returns, and it can make VCs more risk-averse, especially for early-stage ventures.


  • Valuation Reset: The market is undergoing a "recalibration" from the inflated valuations of 2021. Many companies have had to adjust to more sustainable pricing, and there's been an increase in "down rounds" (where a company raises new funding at a lower valuation than its previous round) or "flat rounds." While this can be a healthy market correction, it also makes it harder for VCs to realise the expected returns on their earlier, higher-valued investments.


  • Focus on Profitability and ROI: Investors are now prioritizing companies with clear paths to profitability, strong teams, and demonstrable returns on investment (ROI) and clinical validation. This is a shift from the "growth at all costs" mentality of previous years. Startups are facing intense scrutiny over cash flow, profit margins, and market fit.


  • Buyer Fatigue and Adoption Hurdles: Healthcare buyers (health systems, payers) are increasingly skeptical of digital health solutions due to "point solution fatigue" and budget constraints. Underfunded startups struggle to prove value, leading to slower adoption, which in turn impacts their ability to demonstrate the traction needed for an exit.


  • Difficulty in Securing Follow-on Funding: While early-stage funding (seed rounds) has shown some resilience, securing later-stage funding, particularly Series B rounds, has become more challenging. Many founders are relying on bridge rounds to extend their runway, indicating difficulty in securing primary rounds.


Positive Signs and What VCs Are Looking For:


Despite these challenges, there are some positive signs and areas of focus for HealthTech VCs:


  • AI-Driven Solutions: AI continues to be a dominant sector, attracting significant investment, particularly in areas like AI-driven diagnostics, personalized medicine, drug discovery, and operational efficiency tools for healthcare. VCs are keen on solutions that can demonstrate clear ROI through cost reduction and improved outcomes.


  • Resilience in Funding: While overall funding is down from the 2021 peak, it has shown resilience and some recovery in 2024, surpassing pre-pandemic levels.


  • Strategic M&A: M&A activity, particularly for medical devices, has shown some uptick. Strategic integrations and market corrections are providing exit opportunities for select high-growth ventures.


  • Niche Opportunities: Underserved areas like women's health, elder care, and AI-driven back-office solutions are attracting investor interest.


  • Strong Fundamentals: VCs are looking for strong, adaptable teams with commercial acumen and a clear understanding of market needs. Founders who can demonstrate robust evidence of efficacy and cost-effectiveness for their solutions are more attractive.


  • Multiple Exit Options: Companies with multiple potential exit pathways (e.g., to private equity, public offering, or strategic acquisition by a larger medical device or Pharma organisation) are more appealing to VCs.


Despite these challenges, some VCs see opportunities. M&A is viewed as a viable path, with stronger HealthTech companies acquiring weaker competitors to consolidate the market. Additionally, strategies like structured liquidity provisions (e.g., loans, buyback options) and secondary market transactions are being explored to provide partial exits for LPs. Focus on proven technologies, like AI-driven solutions, also sustains investor interest, with 30% of 2024 HealthTech investments going to AI-enabled companies.

Nelson Advisors > Healthcare Technology M&A

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Nelson Advisors specialise in mergers, acquisitions & partnerships for Digital Health, HealthTech, Health IT, Consumer HealthTech, Healthcare Cybersecurity, Healthcare AI companies based in the UK, Europe and North America. www.nelsonadvisors.co.uk

 

Nelson Advisors regularly publish Healthcare Technology thought leadership articles covering market insights, trends, analysis & predictions @ https://www.healthcare.digital 

 

We share our views on the latest Healthcare Technology mergers, acquisitions & partnerships with insights, analysis and predictions in our LinkedIn Newsletter every week, subscribe today! https://lnkd.in/e5hTp_xb 

 

Founders for Founders > We pride ourselves on our DNA as ‘HealthTech entrepreneurs advising HealthTech entrepreneurs.’ Nelson Advisors partner with entrepreneurs, boards and investors to maximise shareholder value and investment returns. www.nelsonadvisors.co.uk

 

 

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