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How can a market be both overheated and underinvested? Look at healthtech in 2018…

Jason_Foster_headshotAs the saying goes, “Data doesn’t lie…”, except sometimes it does mislead. The data is clear that 2018 saw the largest amount of investment in healthtech ever with $6.8 billion being invested through 3Q18, compared to $5.7 billion for all of 2017. Fantastic you say! However, the other half of the story, which isn’t so great, is that the number of deals declined (to 290 from 357) so the average deal size increased by 43% from $16.4 million to $23.6 million in 2018. So what gives? Despite the record amounts of dry powder venture capital funds have raised, institutional investors are taking bigger bets in fewer, later-stage deals that carry less risk, which is driving up valuations on later-stage companies and putting companies in need of early-stage funding under even more pressure. These data are reflective of what we see in the UK funding market as healthtech companies, between Seed and Series A, are having a particularly hard time raising additional funding.   

The good news for companies looking to raise their first round of funding is that there is lots of angel and government money available. Buoyed by tax incentives for investors (e.g. EIS/SEIS/IHT) as well as government and EU grants (e.g. Innovate UK, NIHR, Horizon 2020, Hello Tomorrow, EIT etc.), coupled with a proliferation of angel networks, accelerators and crowdfunding sites, it has become relatively easy for early-stage healthtech companies to raise a first round of capital. The challenge comes post-seed when the company doesn’t yet have enough commercial traction to raise from traditional VCs but once again finds itself in need of capital… the so-called Valley of Death. Because healthcare has extremely long sales cycles  12-18 months for private healthcare customers and even longer for the NHS, we see many companies struggling to raise more money after their initial pre-seed round. The companies having the hardest time are the digital health/healthtech companies where VCs are even more cautious because there aren’t (yet) well-defined exit paths like there are in biotech and medical devices.  

Some recommendations for healthtech companies in light of this:

  • Bootstrap with your own funds/friends’ and family funds for as long as you can and raise EIS/SEIS later in your lifecycle.
  • Manage your cash burn very carefully – don’t invest too far ahead of revenue and when you do invest, invest in revenue-generating activities not fixed costs (i.e. headcount) which is hard to get away from.
  • Don’t start with the NHS or B2C – “Death by pilot” in the NHS is a very real thing and B2C is hard and expensive. Find a B2B model that works to sell to pharma, medical device, health insurers, hospitals or OEMs or try to sell to large providers who already have NHS contracts.
  • Join a good healthcare-focused accelerator – they often support with services, mentors, connections to customers, and cash.
  • Get grants – Innovate UK is doing a ton of work to support healthtech start-ups, as are Horizon 2020, Wellcome Trust, Prince’s Trust, etc.
  • Find a specialist fund or family office to support you – there are some family offices/funds out there (like ours) who specialise in funding healthtech between Seed and Series A.
  • Be careful with crowdfunding except under certain circumstances (i.e. B2C pre-sales) as it can hurt your chances of getting investment later.


 Figure 1: Typical Sources of Funding at the Different Stages of Company Lifecycle


Seed Bridge Series A Series B+
Friends and family (SEIS)
Angels (SEIS)
Angels/ Networks (EIS)
Early-stage VCs
Family Offices

Specialist VCs

Family Offices


Traditional Venture Capital

Crowdfunding (ok for B2C companies)


Traditional Venture Capital

Increasingly Private Equity

As the healthtech sector continues to mature, and we start to see healthtech companies survive and grow, we will likely begin to see consolidation in the space, which should give professional investors more confidence to move earlier and take more risk. We are just now starting to see this in the US in areas like telemedicine, and it should begin happening here in Europe as well in 2019. In the meantime, there are many organisations trying to help companies looking for funding, including the Tech London Advocates who are launching the Funding Connector to match investors and start-ups. With some investors predicting a shakeout, we will have to wait and see if 2019 will be another record year for healthtech investment.      

Jason C. Foster is an advisor and investor in healthtech companies. He is Founder and Managing Director at Health Equity Consulting, a healthcare growth consultancy. Jason is also a mentor to healthtech start-ups in leading incubators like Techstars, Entrepreneurs First, Deep Science Ventures and StartupBootCamp as well as Co-Chair of the Tech London Advocates healthtech working group.

Learn more: An abridged version of this article features in the LSX Investor Perception Survey 2019. The full report is available to download for free via the link below. You can also read the survey findings focusing on emerging technologies in our white paper extract:

Download the LSX Investor Perception Survey 2019 Read the White Paper: Emerging Technologies



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Jason C. Foster
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