Nelson Advisors: Europe Doesn't Have a HealthTech Funding Problem. It Has an Exit Problem

Europe Doesn't Have a HealthTech Funding Problem. It Has an Exit Problem: A manifesto for the Mid Market and why a functioning M&A ecosystem is what European Digital Health actually needs

Europe Doesn't Have a HealthTech Funding Problem. It Has an Exit Problem. A manifesto for the mid-market: why a functioning M&A ecosystem is what European digital health actually needs.

I. The comfortable diagnosis

Every conference panel on European digital health ends in the same place. The moderator asks what is holding the sector back and the answer arrives on cue: capital. Europe needs deeper venture pools, more growth equity, a European Nasdaq, pension reform, sovereign scale-up funds. If only the money were there, the argument runs, Europe's HealthTech companies would scale into global champions instead of selling early or fading quietly away.

It is a comfortable diagnosis, because it puts the problem somewhere else — in Brussels, in pension allocation rules, in American risk appetite. It asks nothing of founders, boards or investors except patience and grievance.

It is also wrong.

Europe does not have a funding problem. It has an exit problem. Capital has not refused to enter European digital health; it has struggled to leave. And capital that cannot leave does not come back. Liquidity is not the reward handed out at the end of the venture model; it is the fuel that keeps the model running.

Until Europe builds a functioning exit ecosystem, above all, a deep and confident mid-market M&A ecosystem, every new fund, every scale-up initiative and every government task force will be pouring water into a bath with no plug and wondering why the level never rises.

II. Follow the money in, then try to find it coming out

Consider what the money has actually done. Over the past decade, tens of billions of dollars of venture capital have flowed into European digital health. Even now, in a market that has corrected hard, capital is still arriving for the right companies. In the first quarter of 2026, European digital health companies raised $1.2 billion across 67 deals, and the average deal size rose 8% year on year to $21.1 million. Oviva raised $235 million. Alan raised $115 million. DentalMonitoring raised $100 million. Evidence-backed companies with reimbursed revenue are not starving; they are commanding larger cheques than ever. The rising average cheque against a falling deal count is not a symptom of famine but of maturity: capital concentrating in later-stage, clinically embedded companies, exactly as it should.

Now look at the other side of the ledger. In the same quarter, Europe recorded just 13 digital health exits with a disclosed value of $552 million. Set against a decade of investment, that is not a return; it is a rounding error. There were green shoots, Kaia Health's $285 million sale and Gleamer's $267 million acquisition showed what well-built European assets can command, but two deals do not make a market. Globally, digital health exits totalled $13.9 billion in 2025, and M&A accounted for 95% of them, with IPOs and SPACs reduced to statistical noise. The exit market exists. Europe is simply not producing its share of it.

This is the imbalance that should alarm us: not the size of the funnel's mouth, but the near-closure of its spout. When European funding fell 44% year on year in early 2026, commentators reached once again for the funding-problem script. They had it backwards. Limited partners are not withholding capital because they dislike healthcare. They are withholding it because the last cycle's capital never came home. Distributions, not deployment, are the binding constraint on European digital health.

III. Exits are the engine, not the afterthought

The venture ecosystem is a flywheel, and exits are what spin it. A completed sale returns cash to funds; funds return cash to their limited partners; limited partners re-commit to the next vintage. A completed sale mints founders and early employees with capital and pattern recognition, who become the angels, operators and repeat entrepreneurs of the next generation. A completed sale gives strategic acquirers the confidence to buy again, and gives the next board a comparable transaction to price against.

Remove the exits and every link in that chain corrodes. Limited partners judged funds on paper markups, total value to paid-in, through the boom years; they now demand distributions to paid-in, cash actually returned. Funds that cannot show it cannot raise, and funds that cannot raise cannot write Series B cheques. The much-lamented European growth-stage gap is not a cause of the sector's difficulties. It is a downstream consequence of an exit drought.

Consider, too, what Europe loses in every year the drought continues. The founder who exits at forty becomes the angel investor, the second-time entrepreneur, the experienced chair of three more companies. The head of product who vests through an acquisition starts her own firm. This is how Silicon Valley was actually built, not on funding, but on liquidity, recycled compulsively through generation after generation of companies. Europe has spent twenty years trying to replicate the funding without the liquidity, and keeps being surprised by the results.

IV. The IPO delusion

Part of the problem is that Europe has spent two decades waiting for the wrong exit. The IPO retains a grip on the founder imagination, the bell, the ticker, the champagne, that no longer bears any relationship to reality for the companies that make up this sector.

The London Stock Exchange and AIM recorded zero technology or healthcare admissions in the first half of 2026; the UK managed seven IPOs in total, raising £517 million. Investment banks now want €50 million or more of recurring revenue, positive EBITDA and a credible path to a €500 million market capitalisation before they will contemplate a listing.

Almost no European digital health company in the €25 million to €250 million enterprise value range, which is to say, almost every European digital health company, will ever clear those bars. London's reforms have not changed this: AIM Notice 62 stripped back working capital reporting requirements, but the problem was never paperwork. Institutional investors have little appetite for small-cap healthcare listings without secondary trading volume, and no rule change conjures that appetite into being.

Nor do private secondaries offer a painless alternative. LP-led portfolio sales are clearing at 60p to 70p in the pound against net asset value, and direct founder secondaries trade deeper still, subordinated beneath late-stage preference stacks.

For the mid-market, the IPO window is not frozen, awaiting a thaw. It is structurally closed. Founders and boards who keep building for a listing that will never come are not being ambitious; they are being careless with their shareholders' one realistic path to liquidity.

V. What a functioning exit ecosystem actually looks like

The good news is that the exit that actually works is already visible. It is simply undervalued, under-celebrated and under-served. It is the mid-market M&A transaction: the €30 million, €80 million or €200 million sale of a European HealthTech, MedTech, Health IT or Healthcare AI company to a buyer who can take it further.

Four pathways now do the real work of liquidity in this sector.

1. Strategic trade sales lead by volume: global corporates are acquiring mid-market European assets precisely because MDR, IVDR and the EU AI Act have turned regulatory compliance into a capital-intensive moat that independent companies struggle to sustain and acquirers prize.

2. Private equity buy-and-build comes next: with trillions of dollars of dry powder, sponsors are assembling pan-European platforms, acquiring at six to eight times EBITDA, exiting at twelve to fifteen, and paying real money for tech-enabled bolt-ons along the way.

3. Cross-border M&A is accelerating, with US acquirers hunting European assets at a valuation discount and the Nordics and DACH region emerging as consolidation hubs.

4. Structured secondaries and continuation vehicles are providing runway where an outright sale is premature.

None of this is a consolation prize. Acquisitions now account for more than two-thirds of venture-backed deal outcomes globally, and 95% of digital health exits.

The mid-market deal is not what happens to European companies that fail to become Epic or Medtronic. It is the exit, the one that returns capital, retains teams and keeps innovation compounding inside larger platforms. An ecosystem that treats a well-run €80 million trade sale as a disappointment has confused its mythology with its interests.

VI. The clock is ticking

There is urgency here beyond the structural argument. The venture funds of the 2019 to 2021 super-cycle are entering years five to seven of their lives, and their limited partners are demanding cash rather than markups. In the UK, the 2026 carried interest reform, taxing carry at just over 34% for qualifying investments and up to 47% otherwise, and removing the advantage of holding assets beyond 40 months, has given general partners a personal reason to conclude exits sooner rather than later.

Boards that begin preparing now will sell from a position of strength, running competitive dual-track processes that play strategic acquirers against private equity platforms and let tension set the price. Boards that wait will join a lengthening queue of forced sellers, negotiating against fund deadlines with a single bidder who knows it. The difference between those two outcomes is rarely the quality of the company. It is the quality of the preparation and the process.

VII. A manifesto for the mid market

So here is the argument, laid out plainly.

Founders should build to be bought. Not cynically, but seriously: reimbursed, institutional B2B revenue through frameworks like Germany's DiGA and France's PECAN; clinical evidence that survives diligence; MDR, IVDR and AI Act compliance treated as balance-sheet assets rather than overhead. The disciplines that make a company acquirable are the same ones that make it durable.

Boards should treat exit-readiness as governance, not opportunism. The work begins 18 to 24 months before a process: cleaning the data room, resolving customer concentration, mapping the realistic buyer universe and understanding what each buyer will actually pay for. Optionality is created early or not at all.

Investors should fund the consolidation, not just the creation. The returns of this decade will be made in the €25 million to €250 million range, in platforms, bolt-ons and buyouts and the fastest way to reopen the funding taps at the top of the ecosystem is to send cash back up the chain from the bottom.

Policymakers should stop treating the acquisition of a European company as a failure of European sovereignty. A market in which buyers compete fiercely for assets attracts far more capital formation than one in which companies are protected into irrelevance.

The ecosystem should change its scoreboard. Celebrate exits as loudly as fundraises. A funding round is a promise; an exit is a result.

And the mid-market deserves specialist advice. Large-cap investment banks will not run a €60 million HealthTech process with conviction, and generalist brokers cannot navigate DiGA reimbursement, Notified Body audits or an American strategic's diligence list. A functioning exit ecosystem needs sector-native M&A advisers who know every buyer in the market and do nothing else — the connective tissue that matches Europe's companies to the world's buyers, deal by deal. That advisory layer is as much a piece of ecosystem infrastructure as any fund, and Europe needs more of it, working harder, at precisely this end of the market.

VIII. Exits are not the end

An exit is not a surrender. It is the moment the flywheel turns: capital returns, talent recycles, acquirers gain confidence, and the next generation of founders starts with the proceeds and the scar tissue of the last.

Europe's digital health sector has world-class science, world-class clinicians and whatever the conference panels say, access to capital for the companies that earn it. What it lacks is the confident, liquid, professionally served mid-market M&A ecosystem that turns a decade of investment into a permanent industrial base.

Stop lamenting the funding. Build the exits. The rest will follow.

Nelson Advisors > European HealthTech, MedTech, Digital Health Investment Banking

Nelson Advisors specialise in Mergers and Acquisitions, Partnerships and Investments for Digital Health, HealthTech, MedTech, Health IT, Consumer HealthTech, Healthcare Cybersecurity, Healthcare AI companies. www.nelsonadvisors.co.uk

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