By Jake Hare, founder and CEO, Launchpeer.
The year 2021 experienced a global deceleration of the venture capital market that impacted the broader startup ecosystem, regardless of company size and stage of growth.
In the first quarter of 2022, CB Insights found that the $10.4 billion that was invested in global health tech startups was down 36% compared to the $16.2 billion that was put into the global market from Q4 of 2021. Experts predicted this drop and don’t believe a rebound as drastic as the one seen during the pandemic will be happening any time soon.
This not to say, of course, that the health tech industry will be seeing its end. There is still an obvious need for innovation and development in the area. Rather, the funding frenzy of 2020 and 2021 has come to a halt, and the explanation as to why is rather simple.
The cool-off in health tech investing has much to do with the normalization of COVID-19. It follows a larger trend of investors pulling back from backing startups after a year of all-time-high cash flow for the businesses.
The stagnation in funding for health tech in particular followed a massive jolt of investment in response to the COVID-19 pandemic. It makes sense – the perceived value of the industry in the short-term shot up exponentially. But now that the immediate need for health tech innovation has receded, VCs are exploring what other industries may be the next to explode. And why wouldn’t they? Compared to other ventures, the health tech industry has slower ROIs due to its longer and expensive cycles of R&D, not to mention the bureaucratic hoops. It’s likely that investors are looking to shift their ventures towards markets with a clearer path to returns.