Healthtech companies reap benefits of robust year in venture capital funding

Photo: Erik Isakson/Getty Images

Venture capital investment in global healthtech companies is projected to reach $42 billion by the end of the year, according to Silicon Valley Bank's latest report, "The Future of HealthTech."

The first three quarters of 2021 closed with what SVB called an astounding $34 billion invested globally across 1,040 deals.

U.S.-based virtual and hybrid care companies raised north of $9.6 billion in 2021, and the report projected $3 billion in funding for U.S. mental health companies this year. The majority of funding (60%) came from 98 mega rounds, led by the largest mega-round in healthtech history: Devoted Health's $1.2 billion Series D funding.

Jon Norris, managing director for business development in SVB's Healthcare practice, said the robust activity in venture capital in the healthcare space is a function of excellent public markets and M&A activity in the past five-to-six years.

"This produced great exit activity – and returns – and spurred venture funds to raise bigger funds in a faster time frame, so there is a lot of capital available," he said. "In the last 18 months investment has surged even more as healthcare investment activity, both private and public, became the place to invest as all four sectors – biopharma, dx/tools, healthtech and medical devices – actively supported the response to the COVID-19 pandemic."

Norris pointed to alternative care (virtual and hybrid care outside the traditional hospital setting) as the best example of how the pandemic has accelerated acceptance of an area that was already gaining traction.

"The pandemic forced acceptance of this healthtech subsector and spurred a torrential flood of capital, both from traditional venture investors but also hedge funds and PE [private equity] shops that have moved downstream to seek out exciting new technologies and approaches," he explained.

WHY THIS MATTERS

The global pandemic drove an unprecedented surge in healthtech VC activity, with investment pouring into healthtech companies as the healthcare industry faced mounting pressure to innovate and adopt virtual and hybrid care models swiftly.

Improved consumer and provider attitudes toward telehealth, plus regulatory changes that facilitated its widespread use, have driven record venture investment into those alternative care models, the report noted.

Norris said he has personally been surprised by the lack of a slowdown in VC activity in the healthcare space.

"It is hard to forecast record year after record year, especially when the public markets were not performing as well in 2021 as in recent years, but the pace of investment this year has blown away any previous year, hitting yearly records in all four sectors by Q3," he noted.

THE LARGER TREND

Norris said there is a record amount of venture capital still to be deployed (raised but not yet invested), but he would posit that investment will be down from the records seen in Q1 and Q2 2021, as investors slow their pace while turning their eyes to portfolio management and exit possibilities for their companies.

"I think biopharma and healthtech will continue to lead investment in healthcare, but would keep an eye out for liquid biopsy technologies and computational biology drug discovery companies in dx/tools [diagnostics and tools] and noninvasive monitoring and neuromodulation technologies in medical devices," he added.

ON THE RECORD

 "The pandemic substantially increased the prioritization of wellness by consumers across the globe. As a result, wellness is becoming a topic of immense investor attention," the report noted. "We predict health and wellness [H&W] companies will increasingly evolve into alternative care companies as they expand their offers beyond just H&W and into more clinical provider settings."

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