Health tech venture investment may also be through the bottom of its cycle
Last month we reported that healthcare M&A investment may be through the bottom of the cycle, after two years of downturn.
But it’s not just M&A of healthcare services providers that has been negatively impacted by the increase in interest rates over the past two years. Venture capital investment into health tech start-ups and scale-ups has also been affected, but now may be about to rebound.
Marion Jeng, Associate at multinational investment bank DAI Magister, who advises investors in the health tech space, tells us that health tech investment peaked in 2021, when valuations were high and investment was “prolific”.
As with healthcare services M&A, investment into health tech start-ups and scale ups then dropped significantly in 2022 and 2023, as rising interest rates took their toll.
And, just as with healthcare services M&A, the investments which have still been taking place have been done with greater caution and have taken longer to get over the line.
But, whilst this risk aversion pushed PE investors acquiring established healthcare providers towards smaller assets requiring less debt, venture capital investors investing in health tech have been pushed towards larger assets that are more towards the scale-up phase and have already demonstrated a product and path to profitability.
This presents a serious issue. If no one is willing to take a punt on less established start-ups developing products that have yet to be demonstrated to be workable or profitable, the pipeline of new health tech innovations will start to dry up.
Eventually, regardless of how quickly interest rates fall, something will have to give. As with PE, venture capital investors have limited partners who expect a return. Assets being held have to be exited at some point and new capital needs to be deployed.
Jeng believes that we are now through the bottom of the cycle, and that, given the big fundraising rounds recently done by venture investors, we should expect the next 18 months to be a growth period, for venture investment and as well as for M&A.
We would welcome your thoughts on this story. Email your views to Martin De Benito Gellner or call 0207 183 3779.
