Finance
Innovators have capitalised on the recent fundraising boom in digital health. Companies that have raised a significant amount of finance early in their journey are now focussed on building value. But with the uncertain economic outlook dampening investor risk appetite and seeing valuations fall, many are concerned about whether they can deliver.
Unfavourable terms and high investor expectations have also put digital health companies on a challenging path for future fundraising and growth.
Capital raising frenzy
The last few years have seen unprecedented levels of capital raising in digital health. On the back of a fundraising boom, VCs have been eager to put their capital to work. As such, the companies included in the research have been able to raise a collective £32 billion in finance.
Capital raising frenzy
The last few years have seen unprecedented levels of capital raising in digital health. On the back of a fundraising boom, VCs have been eager to put their capital to work. As such, the companies included in the research have been able to raise a collective £32 billion in finance.
raised on average per company.
Read more analysis about the outlook for digital health investment from Josef Fuss
Underlying risk
However, fundraising hasn’t been without its challenges and many digital health businesses have failed to meet their targets. Investors have also negotiated hard – forcing digital health leaders to accept terms they are uncomfortable with in order to gain investment. As a result, litigation risk is high.
say their company has failed to meet its fundraising target.
have had to accept unfavourable terms in negotiations.
have been involved in a legal dispute with an investor.
The market moves faster than the terms of shareholder and funding agreements are designed to bear. This is especially true in digital health, where innovation is rapid, competition fierce and large investors are deploying capital to smaller and sometimes untested companies. As such, it is not uncommon for investors and investee companies to find themselves in dispute.
Laurence Lieberman, Partner
The market moves faster than the terms of shareholder and funding agreements are designed to bear. This is especially true in digital health, where innovation is rapid, competition fierce and large investors are deploying capital to smaller and sometimes untested companies. As such, it is not uncommon for investors and investee companies to find themselves in dispute.
Laurence Lieberman, Partner
Changing outlook
A majority of digital health companies have not been able to secure sufficient capital to fund their immediate growth plans. But as they look to extend their runway, many are finding the investment landscape changed from the heights of 2021. Digital health leaders are also concerned that the complex solutions they are building will struggle to capture investor interest in a more risk conscious market.
require additional capital to meet product milestones and commercial goals.
believe rising inflation, interest rates and geopolitical tension will reduce investors' risk appetite.
believe that investors are predominantly interested in financing digital health products that don’t require certification or regulatory approval.
Timing is key to putting your best foot forward. At Careology, we have been very careful about fundraising and managing our runway. Providing investors with greater assurance by demonstrating value and market fit is key – signed client contracts with revenue flowing provides a far more solid basis for negotiation than pipeline discussions. The investment we’re looking for next is all about growth and delivery for clients – investing in sales, marketing, ongoing product development to achieve our ambitious product roadmap and ensuring the right people are in place to execute and scale.
Paul Landau, Founder, Careology
Timing is key to putting your best foot forward. At Careology, we have been very careful about fundraising and managing our runway. Providing investors with greater assurance by demonstrating value and market fit is key – signed client contracts with revenue flowing provides a far more solid basis for negotiation than pipeline discussions. The investment we’re looking for next is all about growth and delivery for clients – investing in sales, marketing, ongoing product development to achieve our ambitious product roadmap and ensuring the right people are in place to execute and scale.
Paul Landau, Founder, Careology
Who is investing in digital health?
Most prolific investors in the digital health companies surveyed
1. High net worth individuals
2. Specialist technology venture capitalists
3. Specialist digital health funds
4. Specialist digital health venture capitalists
5. Private equity houses
Who is investing in digital health?
Most prolific investors in the digital health companies surveyed
1. High net worth individuals
2. Specialist technology venture capitalists
3. Specialist digital health funds
4. Specialist digital health venture capitalists
5. Private equity houses
Specialist investors may be more committed to digital health and better set up than opportunistic investors to deal with the regulatory burden and long ROI cycles associated with complex products. However, there aren’t an infinite number of digital health funds – especially those deploying to later stage companies. Therefore, ongoing access to capital is likely to mean working with generalist VCs, private equity houses, family offices and high net worth individuals. For these investors, a very clear narrative and integrated commercial and regulatory roadmap are essential
- Josef Fuss, Partner and co-head of the international Technology, Media & Communications
Read Josef’s advice for engaging investors below
Private wealth has always had a significant impact in shaping the world that we live in, and our own research confirms that the world's wealthy are actively seeking to direct capital to address urgent societal challenges. Digital health is a natural investment destination for individuals looking to both protect legacy and drive positive change. From improving access to healthcare and health outcomes, to empowering clinicians and patients with more efficient tools, digital health is at the forefront of building longer, healthier lives
- Nick Warr, Partner and Head of Taylor Wessing’s International Private Wealth Group
Read more about the investment priorities of private individuals in Taylor Wessing's recent report, World Shaping Wealth
Specialist investors may be more committed to digital health and better set up than opportunistic investors to deal with the regulatory burden and long ROI cycles associated with complex products. However, there aren’t an infinite number of digital health funds – especially those deploying to later stage companies. Therefore, ongoing access to capital is likely to mean working with generalist VCs, private equity houses, family offices and high net worth individuals. For these investors, a very clear narrative and integrated commercial and regulatory roadmap are essential
- Josef Fuss, Partner and co-head of the international Technology, Media & Communications
Private wealth has always had a significant impact in shaping the world that we live in, and our own research confirms that the world's wealthy are actively seeking to direct capital to address urgent societal challenges. Digital health is a natural investment destination for individuals looking to both protect legacy and drive positive change. From improving access to healthcare and health outcomes, to empowering clinicians and patients with more efficient tools, digital health is at the forefront of building longer, healthier lives
- Nick Warr, Partner and Head of Taylor Wessing’s International Private Wealth Group
Running to stand still
For the companies that have been able to access capital, focus has shifted to delivery – infrastructure, talent, supply chain and joint ventures. But still investor pressure remains. As valuations come down in response to a cooling market, companies that raised a significant amount of capital at the peak will need to build value to access finance in future.
are concerned about delivering for investors having raised significant capital early.
say that investors have extraordinarily high expectations of growth and ROI.
As valuations come down, companies that raised a large amount of finance at the height of the market will need to grow into these valuations. Many will need to run fast just to stand still. Raising money when the market is good can be a poisoned chalice – entering future financing rounds at a lower valuation limits choice and negotiating position.
Josef Fuss, Partner
As valuations come down, companies that raised a large amount of finance at the height of the market will need to grow into these valuations. Many will need to run fast just to stand still. Raising money when the market is good can be a poisoned chalice – entering future financing rounds at a lower valuation limits choice and negotiating position.” – Josef Fuss
Josef Fuss, Partner
