Welcome to the first installment of our ongoing new blog series, "An update from the front." These articles will take a closer look at the verticals we operate in. In our first installment, we take the magnifying glass to the health tech sector. What's the prognosis for this burgeoning industry?
What's going on in health tech?
Are these tough times for health tech startups and established industry players? As an investor in the health tech space, we’ve been watching as companies in the Europe and U.S. retrench. Although U.S. and the European Union health tech startups have raised about $23 billion so far this year, this represents a drop over historical numbers as the market recovers from the massive investment in 2021, according to a recent report.
Let’s take a closer look at the data. The report in question specifically examined funding data through the third quarter of this year. While health tech funding numbers were up through the first two quarters, Q3 saw a perceptible drop in funding. The third quarter drop came in at nearly 40%, a massive drop from the height of investment seen in the second quarter last year. Indeed, 2021 was a banner year for health tech sector companies. 2022? Not so much.
2022 health tech activity drops
Even huge mega-funding rounds fell flat this year. For health tech companies looking for $100 million or more in funding, available investment funds were down nearly 50%. In 2022 so far, there has been a 47% drop in new health tech unicorn funding over the same period last year. Funding rounds for health tech startups valued at more than $1 billion also took a precipitous drop.
Meanwhile, the report found zero health tech IPOs from venture-backed companies in the U.S. and E.U. so far this year, while the performance of companies that went public in recent years trended downward. The trend has been similar in Canada and Australia, where health tech startup activity has dwindled in 2022, down from epic highs in 2021.
Still, it isn’t all dark clouds on the horizon. Why? Because there has been an uptick in merger and acquisition activity in Q3. While it remains low compared to historical standards, it should not be counted out. Overall, there were 48 health tech mergers in Q3. Median acquisition prices were significantly down as purchasing companies tried to balance the lofty valuations seen over the past few years. Certainly, a market rebalancing has occurred.
For many decades the Western economic model focused on a growth-at-all-costs model. And yet today, times have changed. While growth is important, managers and company owners are putting a clear emphasis on value creation. This value creation can be realized by improving health outcomes or increasing patient access or affordability. Investment has shifted into earlier stages where valuations are corrected from last year's sky-high levels.
Telehealth services moderate
Telehealth services exploded during the COVID-19 pandemic. As people stayed locked in their homes virtual care took off. Americans were avoiding avoid crowded doctors’ offices and hospitals at all costs. But now that pandemic fears have declined, so has telehealth use, even though it’s still well above pre-pandemic levels.
What did companies do as a result? They shifted away from telehealth services and moved investment dollars into the software field. Whether web- or app-based, third-party medical services providers have moved into the digital space. Still, small health tech companies not prepared for the coming slowdown will find a hard landing awaits.
At Pluribus Technologies, we pay close attention to market conditions and carefully evaluate how they will impact our family of companies. Our investments in the health tech sector are meant to drive innovation, and companies like TeleMED Medical Diagnostic Solutions do just that. For more information regarding our official health tech investment strategy, click or tap here. Are you ready to take a journey through innovative health tech, eCommerce, eLearning, and digital enablement services? Step into Pluribus Technologies.