Despite the pandemic’s impact, the U.S. healthcare venture investment market exploded in 2021 and 2022. More corporate healthcare investors began expanding their activities to support their strategies and incite innovation among startups.
In this blog, you will learn about the key drivers of this growth in recent years, trends in the industry, and priority areas of focus for attracting investors to your healthcare startup business.
Key Drivers of U.S. Healthcare Investment Growth
According to Silicon Valley Bank, U.S. healthcare funding for healthcare companies grew 57%, U.S. venture investments grew 55%, and global exit values grew 54%. In addition, Silicon Valley Bank says the post-IPO performance of new healthcare companies in 2020 was +85% for ventures launched in 2020.
Thus, the number and size of healthcare funding grew, and the number of prominent players increased. Players such as Tiger Global, Andreessen Horowitz, Clayton, and Sequoia Capital in healthcare have emerged since 2021. They have created more channels for early-stage startups looking to invest. For example, private-capital investment company Tiger Global raised $6.65B for its 13th fund in 2021 and has since become a significant player in healthcare and life sciences investing.
Another key driver of U.S. healthcare investment growth would be the increased availability of private capital, allowing private merger and acquisition (M&A) deals with initial public offerings (IPOs). Pharmaceutical companies, particularly, and other traditional strategic acquirers, are most impacted by this driver. For instance, pharma companies typically avoided competing with IPOs. Now, they are forced to acquire ventures at higher valuations in early, private deals to stay ahead of financial investors.
Lastly, special purpose acquisition companies (SPACs) are becoming another exit path for healthcare investment ventures, as they account for nearly half the digital health IPOs in 2021.
Key Trends of U.S. Healthcare Investing
One of the most critical trends of the past two years is the shifted focus to digital healthcare. While digital health is not currently the largest segment in healthcare, it is one of the fastest-growing. The pandemic was a significant catalyst for the advancement of telehealth and other forms of virtual healthcare in the U.S.
Along with growing the telehealth market, according to hfma, the pandemic:
- Accelerated the shift to at-home care, thanks to advancements in virtual care and remote monitoring
- Increased the use and adoption of tech-enabled solutions
- Increased collaboration between operations and investment in health systems
- Prompted healthcare practices to expand their value-based “risk” contracting
Powerhouse tech companies such as Amazon, Microsoft, and Google are taking advantage of this healthcare trend by also getting in on the action, integrating digital health features into their software solutions.
Thus, driven by these digital trends, capital for digital healthcare ventures comes from all avenues.
Best Strategies to Attract Healthcare Investors
There are many efforts startups can make to create more funding opportunities. Below are some critical success factors that will guide healthcare companies and early-stage startups in attracting healthcare venture capital:
- Join the open exchange.
- Startups should join the small and large market advisory board (SMBAB) to exchange information about the company with potential investors.
- Startups should list their projects on these boards and how these projects will move their company forward.
- Stay ahead of competitors.
- Investors are always looking for the healthcare industry’s most innovative technologies and solutions.
- Capitalize on your company’s or product’s unique benefits and key differentiating factors from competitors.
- Improve your internal team.
- Be sure to highlight the talent on your team.
- Investors are always searching for talented leaders for the healthcare system as it advances. The best way to do this is through networking at events and online.
- Be willing to adapt to an ever-changing environment.
- In the healthcare industry, especially with a startup company, it is important to be adaptable to a changing market and changing investors and to reevaluate your strategy consistently.
Priority Areas of Focus for Healthcare Investing
Below is a table from hfma that details the key investment areas, venture investing firms in those areas for startups to consider, and examples of other U.S. innovation leaders who have secured investments in the last few years:
Overall, emerging companies entering the U.S. market should consider key trends, areas of opportunity, and the best strategy for attracting investors in the healthcare market. There are endless opportunities for funding. However, determining the right area of focus and key steps to securing investments is most important before beginning outreach efforts.