Wednesday, May 12, 2021
Trends in health tech investments: Funding the future of health
Simon GisbyPrincipal, Deloitte
Peter MiccaNational Health Tech Leader, DELOITTE
Health tech innovators are playing a key role in reshaping the health care industry in response to COVID-19. With COVID-19 having accelerated the future of health; moving forward, those driving innovation and transformation will likely be well positioned for success.
As it did for all industries, the pandemic created an unprecedented crisis for the health care industry. But unlike in many industries, it also created opportunities. It triggered rapid and large-scale responses such as adoption of virtual care delivery, an increased focus on mental health and well-being, a push for quicker drug and vaccine candidate discoveries, and a greater understanding of the impact of social determinants on health and health inequality. And health tech innovators were critical to this response. In fact, in 2020, venture funding for health tech innovators crossed a record $14 billion and nearly doubled in comparison to 2019, according to a recent Deloitte analysis of Rock Health’s Digital Health Funding database.
The Deloitte Center for Health Solutions analyzed the latest venture capital funding data and interviewed 15 venture capitalists, private equity investors, and corporate venture capitalists (CVCs). These interviews revealed that:
- Health tech innovators focused on developing products, services, and solutions that the Center for Health Solutions’ analysis finds align with Deloitte’s thesis for the Future of Health—more specifically, products and solutions that address well-being and care delivery, along with open, secure data and interoperable platforms. These sectors are likely to continue receiving a significant share of funding in 2021 and beyond
By leveraging experience across different industries and sectors in health as well as their own network, investors can bring more than financial support to innovators and the industry in general. In particular, CVCs can bring specific health care knowledge, act as an incubator to co-develop products with the innovators, and become customers. Innovators can focus on transformative business models, developing a consumer-centric approach to health care, and creating ecosystem partnerships. However, it can be imperative for investors, including industry incumbents, to coach innovators and support them with industry and regulatory expertise, in addition to capital, to accelerate toward the future of health together.
Health tech innovators have an opportunity to achieve a key place in the future of health but may need to overcome a few hurdles to sustain and thrive in this future.
- As technologies evolve and simultaneously become table-stakes, innovators can succeed if they focus on the empowered consumer, have agile business models, convene or participate in ecosystems, and have the ability to scale rapidly. A winning value proposition today may be a ‘me-too’ tomorrow. Innovators should be ready to use data analytics, drive technology changes and adoption, and clearly demonstrate value to customers.
- Innovators selling to incumbents often encounter long sales cycles and subsequent cash flow challenges. Sales leadership, channel partnerships, and creation of a marketplace ecosystem can help shorten sales cycles and alleviate investor and market concerns over business adoption. Innovators should also be mindful of how they price their solutions, even with an initial anchor client. Pricing to create a network effect early on might mean a longer timeframe to profitability, a greater need to scale, and require more capital to sustain losses.
- While the current regulatory environment is encouraging, with the relaxation of regulations to encourage virtual health and guidance on interoperability rules and price transparency, short- and long-term uncertainties may remain as situations around the pandemic continue to evolve. Innovators should remain aware of and able to adapt to changes.
As the health tech market continues to grow, successful innovators should quickly move beyond minimally viable products to demonstrate market opportunity to their customers through improved quality, decreased costs and/or a better experience. According to investors, scalability and key return on investment metrics will likely separate the winners and losers.
Peter Micca is the Audit & Assurance Health Tech leader and is a partner with Deloitte & Touche LLP. Simon Gisby is the Future of Health leader, Risk and Financial Advisory, Deloitte Transactions and Business Analytics LLP.
This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.
Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the “Deloitte” name in the United States and their respective affiliates. Certain services may not be available to attest clients under the rules and regulations of public accounting. Please see www.deloitte.com/about to learn more about our global network of member firms.
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