2 December 2022

State of European HealthTech Report 2022

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Retreat from telemedicine is driving innovation across healthcare as technology value has become clear

Finch Capital’s ‘State of European HealthTech Report 2022’ finds that on the back of the rise and fall of telemedicine funding, a new breed of entrepreneurs with experience in HealthTech are founding companies. While the number of companies founded fell in 2021, ignoring the frenzy in 2021, capital invested in HealthTech companies steadily increased. The future of funding bodes well for the sector as it is less reliant on mega rounds. Talent acquisition has also slowed across the board, particularly in sectors that grew disproportionately in 2021. That said, what is becoming abundantly clear is the importance of technology in the health M&A

Read the report here

Amsterdam, 2 December 2022; Finch Capital’s inaugural State of European HealthTech report dives into how the industry has been transformed 2 years after the pandemic. In the report, the venture capital firm forecasts how the next generation of HealthTech entrepreneurs will give rise to technology businesses outside of Telemedicine.

While the sector is still young, it has seen significant growth in recent years, with total capital invested having grown from c.$1.7 billion in 2017 to close to $10 billion in 2021 which is when it peaked during the funding frenzy. In 2022 it is expected to reach c.$5 billion in capital invested,
which is still significant growth compared to 2020 levels. The M&A market that was very focused on traditional healthcare providers is also pivoting away, with health technology companies accounting for c.20% of total health M&A today vs. 5% in 2019.

In Finch Capital’s inaugural report, four key trends in the HealthTech vertical were assessed as a proxy for the prosperity of the sector: the number of entrepreneurs in the ecosystem, the funding volume, the number of hires in the industry verticals, and the function exits play in the
development of the HealthTech sector.

HealthTech is becoming relevant in M&A

Finch Capital’s research reveals that healthtech investments in the region have slowed down as a result of the economic scenario. The report shows that new business formation in the HealthTech sector peaked in 2018 and declined by 48% during 2021. 

In 2022, the top 10 funding rounds in Europe accounted for 28% of the overall deal volume. So far in 2022, the European HealthTech sector has raised only ~50% of the capital raised in 2021. Global Corporate VCs have reduced their commitments to the sector, albeit, at a lower rate than some other sectors such as Fintech.

Since H1 2021, valuations of leading Public HealthTech companies have come down back to 2019 levels after a strong rally since 2020. Accordingly, M&A/IPO transactions in 2022 are also seeing a downward trend in valuations compared to the highs of 2021. 

The value-add of Healthtech solutions alongside traditional healthcare has become more evident over the years, with M&A in the space now accounting for 19% of the total Health M&A volume. This growth is mainly driven by mega-deals such as Cerner and Athenehealth. The European share of healthtech remains stable at around 21%.

The retreat from telemedicine giving rise to software  

Amongst the various subsegments, telemedicine and diagnostic companies that over-hired in 2021 for a greater consumer push were most affected by layoffs reducing staff in both sales and engineering departments. However, B2B focused companies within segments including
hospital/ clinic management and insurtech continue their hiring trend as they further build out
their product and sales capabilities.

Commenting on the findings Aman Ghei, Partner at Finch Capital, said: 

“Telemedince was the knight in shining armor over the pandemic, with the need for remote consultations peaked last year. As we grew out of the pandemic coupled with macro issues, it became clear that
these remote consulting companies did not have a clear business model so we have seen a retreat in funding from the vertical. That has benefited other verticals in the healthtech vertical as investors still remain excited about the broader market”.

Health technology becoming more important in healthcare conversations

“Technology has become more relevant for traditional healthcare investors as M&A in HeathTech reaches 20% of the total healthcare market. We are likely to see increased investment in primary and secondary care software infrastructure as well as specialized
biotechnology companies”.

Normalizing for the boost in COVID related funding, overall funding has actually grown quite steadily in the industry in Europe. The vertical has never relied on IPOs for liquidity and M&A appetite remains quite healthy.

Read the report here