VC investment in healthcare set to cool down after record years

It’s not all up from here. Record healthcare investments in 2021 and 2022 might be outliers rather than indicators of a trend, according to a new analysis of the US, EU, and UK markets.

Venture capitalists poured in nearly $22 billion in 2022, second only to the record $28 billion allocated in 2021, but that’ll likely dry up in 2023 as investments return to 2020 levels ($16.8 billion), according to a January report from SVB Financial Group, the parent of Silicon Valley Bank. (Not that we’re laughing at approximately $15 billion this year in anticipated VC fundraising for healthcare ventures—an area which has grown steadily over the last decade.)

The report highlighted some areas to watch:

• Biopharma: Investment in the biopharma sector totaled $29.5 billion in 2022, down from $38.7 billion in 2021 despite a strong first quarter. It is expected to hover around 2020 levels ($27.4 billion in total) this year, but with increased funding in autoimmune and respiratory companies.
• Medical devices: The sector kept pace last year with the 2021 record investments (a total of $8.5 billion compared to $9.2 billion, respectively). Investment in 2023 is expected to largely mirror what we saw in 2020 ($6.6 billion), but we can expect fewer $100+ million deals, given fundraising for top companies in 2022.
• Medical diagnostics: Investment in medical diagnostics and tools companies is likely to rebound from the second half of 2022 and finish the year at $8 billion–$9 billion, just below the 2020 pace ($10.9 billion). Sector investment fell from a total of $14.7 billion in 2021 to $9.9 billion in 2022.
• Healthtech: Late-stage investment in healthtech, meanwhile, is likely to continue to slow in 2023. That could promote “a wave of consolidations,” per the report, and delay IPO plans until later in the year. Investment in the sector fell to $16.7 billion in 2022 from a total of $35.9 billion the previous year.

Even amid the slowdown, top companies can expect to see continued investments in 2023 as their valuations climb.

“The top 10%–15% of companies will always get financed in the private venture market,” Jonathan Norris, author of the report and managing director for business development in SVB’s Healthcare practice, told Healthcare Brew. “It’s really what happens to the other companies […] That’s really where the rubber is going to hit the road in 2023.”

Norris reiterated that the report’s 2022 findings should be read with the understanding that “2021 really was an outlier year.” Check out the report here.