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What investors are saying about healthcare markets behind closed doors

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Catherine Davies is managing partner of Monticle, which was created to help health tech firms to grow their revenues, make the right connections within the NHS and identify the best NHS organisations to partner with.

Experienced founders know that in these difficult times they need to keep their heads down and carry on doing the right thing for patients.

Many have survived difficult times in the past and lived to tell the tale. They see opportunities in today’s market as well as threats but what do investors think?

Markets don’t like uncertainty but they do like healthcare.

Many investors are pausing to take stock given inflation, the cost of raising (and refinancing) debt and high valuations in 2020 and 2021.

The health tech market is not for the faint-hearted, with significant regulatory complexity. And it lags behind other markets in terms of the uptake of digital technologies.

Valuations of health tech companies are resetting downward. Markets don’t like uncertainty but they do like healthcare.

Investors observe that the highest operational stress is currently focused around those companies with high personal intensity, primarily services-based health and social care providers.

These businesses have a high percentage of staff paid close to the minimum wage.

Catherine Davies

Staff costs are increasing to help people manage the cost of living crisis – if contracts for health and social care services can’t be renegotiated in-year the margins of these businesses will be squeezed.

Who benefits?

Other health and social care businesses are less vulnerable to current market conditions and their valuations are holding steady:

  • Outsourcing businesses
  • Mission critical workflows
  • Digital health/therapeutics and tech enabled healthcare
  • B2B software for healthcare markets
  • Cell and gene therapy
  • Contract Research Organisations serving the life sciences sector

Digital technologies are solving problems that will never go away.

The view from investors is that the future has to bring together an offering of physical and digital health. Innovative technologies can help us get there.

How are investors behaving?

Investors are becoming more focused and pausing to take stock but they still have significant amounts of dry powder to deploy.

We have moved from a world where valuations are high to one where they are levelling off and investors are more discerning.

We are seeing more focused deals and more bridges and extensions.

Diligence processes are taking longer – investors are looking more carefully at operational efficiency, labour costs, supply chain limitations, and other factors that can impact a return on investment.

Early stage companies are raising less in each round. With less investment, does this mean their progress will be slower? Investors know returns in health do not appear quickly but the sector is sticky once you get there.

What’s the outlook?

There are still many challenges to solve in healthcare – the healthcare sector has a longer term value that other sectors don’t have.

Demand continues to rise and workforce challenges require us to come up with innovative solutions.

The need for innovative technologies has never been greater.

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