Healthtech market undergoes redefinition in 2022

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A recent report by Silicon Valley Bank presented the latest investment trends in the so-called healthtech sector and where most venture capital is turning its attention. According to the study, there has been a slowdown in 2022, with a 40% decline in mega deal investments as the market rebalances from the unsustainable activity recorded last year. However, there is still tremendous growth opportunity, with investments in healthtech companies in the US and Europe set to reach $27 billion by the end of the year.

Healthcare technology investments in the US, EU and UK reached $23 billion in the first three quarters of 2022, with a particularly sharp drop in the third quarter – down 39% from Q2 2022 and 67% from the peak in Q2 2021.

According to the study, inflation, global geopolitical factors, and rising interest rates have created a tumultuous market and closed the window for IPOs in healthtech. So far, in 2022, the report has not recorded any IPOs among venture capital-backed healthtech companies in the US or the European Union. In addition, healthtech companies have seen their shares fall at a record pace.

On the other hand, venture capital-backed mergers and acquisitions increased by 16% year-on-year in the first three quarters of 2021.

SVB proprietary data and SVB analysis
Source: PitchBook

“All indications are that a redefinition of the healthtech market is underway, moving from an era of growth at all costs to one that emphasizes clear value creation, whether through better health outcomes, more access or affordability,” the study highlights, commenting that there is still tremendous opportunity for healthtech companies to grow. In its assessment, the sector presented new challenges in 2022 but remains ripe for innovation and more resilient to face periods of recession.

Where investments in healthtech are being made

The chart below from the Silicon Valley Bank report shows where venture capital is investing when it comes to technology applied to healthcare:

Workflow optimization – $5 billion Drug research platforms – US$ 4 billion Clinical decision support – US$ 3 billion Primary care – US$ 2 billion Mental Health – $2 billion Health and wellness – $1 billion

healthtech
Source: Silicon Valley Bank

Another point to note is that healthtech companies founded by women set a record in 2022, receiving 19% of all capital invested. The figure is ahead of venture capital investments in segments other than healthtech, such as biopharma and devices.

In addition, companies founded by women are becoming more prevalent, and their valuations are growing. Two companies reached unicorn status (Bellabeat and Wheel) in 2022. More than that, although overall healthtech valuations fell from their peak in 2021, there were more women-founded companies valued at more than $100 million in 2022 (29 companies), up 12% from last year.

Source: Silicon Valley Bank

The study’s perspective is that the higher concentration of female founders among the highest-value healthtech companies represents a promising advance for the sector. “Diversity can generate better solutions to the most difficult problems in healthcare. In addition, women can present different views of the challenges and strongly identify with female consumer bases.”

Another highlight in the Silicon Valley Bank report was the mental health segment. Mental health companies were not immune to the market slowdown this year, with investment declining from the higher levels of 2021. However, while the broader healthtech sector saw 2022 shrinkage in deal sizes and valuation, MH companies recorded an increase.

Many mental health solutions have proliferated into platforms this year, with record amounts of capital invested by 2021. And demand for these solutions continues to grow, while market leaders in MH are also easing the vendor shortage that has reached a critical point. The hybrid fulfilment model, in particular, has exploded in popularity, with better virtual options expanding access at lower costs.

The study forecasts that demand for mental health solutions will continue to grow, and investment in the sector will remain stable in 2023.

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