Insight

Healthtech investment: Activating the COVID catalyst

In this blog from our Privately Speaking series, KPMG Private Enterprise Life Sciences leader, Janet Lehman, talks about healthtech startups and why they are at the very top of every venture capital (VC) investor’s list. Can the trend last?

Janet Lehman

Janet Lehman

Partner, Audit, U.S. Venture Capital Life Sciences Leader, KPMG US

October 2020

Investor appetite for healthtech assets is nothing new. For the past few years, healthtech companies have enjoyed steadily growing flows of investment capital. In fact, by the end of 2018, US VCs were investing more than $2.5 billion into healthtech startups every quarter1.

Yet, now, the pace of activity has ramped up dramatically. Indeed, all signs suggest appetite for healthtech assets has only increased since the start of the pandemic. Our review of the underlying data clearly shows a significant increase in both deal volume and value flowing into the healthtech sector in the first half of 2020. Average VC Life Sciences pre-money valuations have more than doubled over the past year (at the end of June, the average had hit $144.3 million).2

In the US, biotech and healthtech startups secured significant funding in Q2’20. Sana Biotechnology (a gene-focused biotech) raised $435 million; cancer-screening company Grail raised $390 million; drug developer Erasca raised $200 million.3 Many more are currently in the deal-making process.

Health under the microscope

That biotech and healthtech companies are now in hot demand is not entirely surprising. What COVID-19 demonstrated was that the healthcare sector was in need of positive disruption; existing sector challenges came sharply into focus – from obtaining personal protective equipment and facilitating remote medical appointments through to conducting widespread testing and accelerating the timeframes required to develop treatments and vaccines.

At the same time, the longer-term impacts of the pandemic also started to change consumer behavior and demand for health services. Mental health, in particular, has risen up the agenda as healthcare systems, employers and governments try to help people deal with the isolation of lockdowns and the uncertainty of disruption.

As mentioned in our July Semiannual IPO and M&A Webcast, not surprisingly, mental health startups have been raking in equity since the pandemic started. Mindstrong raised $100 million of equity in Series C funding. BigHealth, a digital mental health therapeutics startup, raised $39 million in their Series B financing. Lyra Health, a mental health platform, closed a $75 million Series C. All told, behavioral health companies received $588 million in funding in the first half of the year – more than the total raised for the full year in 2019.4

So can the trend continue?

Yes – I believe it can. In fact, our research suggests we are only at the start of a massive and ongoing shift towards greater focus on healthtech. Over the past few weeks, we’ve heard from many healthtech companies wanting to explore the potential for further fundraising (exits and IPOs in particular).

There is certainly significant capital to be invested. Even before COVID-19, most VCs were sitting on large stores of dry powder; the pressure was on to put that capital to work. And now, in the first half alone, more than $43 billion has been committed across just 165 funds.5

While the fund count may be lower than usual (this is not an easy environment for emerging managers seeking to launch new funds), the amount committed is on track to far outstrip all previous records. The pile of dry powder seems set to grow.

Looking ahead

The outlook for healthtech look positive. Indeed our view suggests that healthtech’s rise is just starting. And COVID-19 may be the catalyst that ignites the engines.

Footnotes

  1. KPMG Private Enterprise, Semiannual IPO & M&A Webcast, July 31, 2020.
  2. Ibid
  3. Ibid
  4. Rock Health, 2020 Midyear Digital Health Market Update: Unprecedented funding in an unprecedented time, https://rockhealth.com/reports/2020-midyear-digital-health-market-update-unprecedented-funding-in-an-unprecedented-time/
  5. KPMG Private Enterprise, Venture Pulse Q2’20, July 22, 2020.

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