The healthcare sector has seen extreme growth in the past years, mainly because the COVID-19 pandemic highlighted the gaps in the medical system and the need for improvements in most areas. Troubled times gave birth to many innovations from up-and-coming companies that took their turn at making an impact in the industry.
The effects were quick to show – more deals, an increase in valuations, and some of the biggest exits ever. Almost every quarter of 2021 broke the previous records. In Q3 2021, healthcare funding by venture capitalists reached a record – 1904 deals globally with a 27% increase in value compared to 2020.
But as the beginning of a new year came, the hype started to wear off. Q1 of 2022 only saw $10.4 billion in global funding for healthcare start-ups, a 36% decrease compared to q4 of 2021 and a 6-quarter low. In Q2, it decreased even more – only $7.1B were invested in digital health start-ups. Exit activity also dropped, and so did the number of big, late-stage rounds.
If you’ve been working for a while on your healthcare start-up, you can’t expect the same excitement and hype around it as last year, especially from investors. Is this something you should worry about? No. Especially if you have a quality product that solves a real problem in the health sector. It’s not a collapse, but more of a retreat in certain industries, as TechCrunch calls it.
Healthcare start-up funding slows down
Just like healthcare, other sectors that boomed during the pandemic are seeing the same evolution. It doesn’t mean that their products are less valuable or that there isn’t the same need for them anymore. The need for innovation is higher than ever but, unfortunately, most VCs aren’t looking for innovation. But it’s good. In the long term, this will lead to more realistic valuations, a shift in priorities, fueled by more relevant metrics other than hypergrowth (which, as you might have noticed, it’s not always sustainable).
Before the pandemic, health start-ups were not really attractive for most VC investors, as they have financial reasons for investing and it does take a lot of time for these to make money. The lifecycle is long and growth is very slow. You can’t just launch prototypes, you need a lot of testing, certifications, and scientific proof that your product works. And this takes time and, well…time is money. Let’s not get too deep into the technical talent which is also expensive and very hard to find nowadays, especially when most of it is working for the big companies.
So, what can you do as a health start-up founder to overcome these challenges that are resurfacing two years after the beginning of the pandemic? Find a non-traditional investor, one that is not interested only in profit but actually cares about the innovative value of your product and the problem it solves. One that understands the health sector and wants to improve it by supporting you and your solution. And this is where Corporate Venture Capital comes in.
Lately, Corporate Venture Capital is pouring a lot of money into health start-ups, even though traditional VCs are backing up. Last year, they invested $163.9 billion, a 142% increase compared to 2020 and in 2022, CVC backed deals for health start-ups increased by 30% YoY. They understood where the value is. Read on to see how a CVC can help your healthcare startup avoid the common challenges and achieve success in the “post-pandemic” reality.
Corporate Venture Capital puts your product and its value first
CVCs invest mainly for innovation reasons. They don’t push for an exit to generate returns, even if they do need to make a profit. But they understand that profit comes in the long term and they also understand where it comes from – the real value of your product.
That’s what they’re looking for and they have their reasons – it helps them protect their market share and it improves their own offering for their clients. CVCs want innovative products in their portfolio and they will do what it takes to have them, even though that means working on them.
Another benefit is that they understand your product lifecycle and even the slow growth. That is why they won’t push for vanity metrics and will, instead, support you towards achieving real sustainable goals, even if it takes more time.
Corporate Venture Capital is more than capital – It’s also resources, expertise, and network
CVCs not only understand the common challenges that healthcare start-ups face when starting, but they can also help you navigate them differently than you would alone (and faster). They can help you with finding the right talent, exposing you to the right network, and giving you the credibility you need for stepping into the market or even for your next funding round. And the best thing? The CVC you choose doesn’t necessarily have to be a hospital or medical company.
Let’s talk talent first. When working with a CVC, you can get an already built team of developers, who have worked before on products similar to yours. Instead of wasting a lot of money and time by doing the hiring for yourself, you can save up to 9 months on your launch or time-to-market, especially if the timing is essential for your product, as it is with most health solutions. For example, our mother company, Fortech, develops software for medical clients for over 18 years now. We have teams of people who have both the technical and the industry expertise to help you develop and grow faster. If you’re looking for CVC money, let’s talk and see how we can help.
Now let’s talk network. Most CVCs are investing in products that they or their clients can use as customers. They are looking for real solutions to their real problems and this can guarantee some valuable first customers for your business. Other than actual clients, corporates have big networks that can benefit from your product. It’s a great start, especially for healthcare start-ups that need to launch and don’t know how and where to find their first customers.
And lastly, credibility. If you’ve been working on your start-up for a while, you know why credibility is essential in the health sector. Firstly, because your customer is, in most cases, enterprises who don’t usually trust high-risk start-up solutions. Having a big, established company back you up and help you secure your first customers.
A CVC will also give you credibility in front of other investors. Since they mostly invest early, you will quickly get to need more money, thus raising another round. CVCs make the funding process easier, even if that means that they invest in follow-on rounds or if they just help you connect with bigger investors.
If you have a start-up in the healthcare industry, let’s talk! We invest in pre-seed and seed rounds and we want to support your growth with more than capital. We offer tech-for-equity options as well as industry and technical expertise and support with marketing, sales and recruiting!Contact us