UK healthtech startups on course for poor year of funding

2017 was an exciting year across the board for the UK’s venture capital scene. Funding reached unprecedented levels, as the country’s tech sector underwent a minor “Silicon Revolution”. One sure sign of this can be seen through the location of the investors who fuelled this increase. Over the past five years, the number of deals backed by Silicon Valley investors has jumped by 252%, as joint research between Beauhurst and tech law Pennington Manches recently revealed. Matt Lerner, a partner at one such VC firm, said that “the UK has an abundance of talent… and its fintech and healthtech innovation is ahead of the Valley.” Considering that, it’s disappointing to see that UK healthtech startups are currently on course to fall well short of 2017’s funding levels.

Whilst the broader tech investment scene has also plateaued this year, the drop is more pronounced in healthtech. (In total, all UK tech companies raised £5.1b in announced equity finance in 2017. The figure currently sits at £3.1b. Compare this with healthtech, which saw £160m of funding in 2017, a figure which sits at £62.8m so far this year).  

Of course, this does not necessarily mean UK healthtech startups are doing any worse than other tech companies. It could be that growth is going so well that entrepreneurs operating in this space don’t need external funding. However, the more obvious explanation would be that investor interest in the sector has dipped, for reasons that are unclear.

Healthcare Startups

The healthcare market in the UK is dominated by the NHS. However, healthtech startups such as babylon have run into several difficulties whilst trying to partner with the NHS, as has social care startup Cera Care (though the latter did recently raise $17m). It could well be that after an initial period of investor excitement, the reality of partnering with an organisation as large as the NHS is proving a harder nut to crack. 

*Disclaimer: Cera shares significant shareholders with Beauhurst

This is to be expected – these companies are still very young, and will presumably become better at driving innovation in the public health sector as time goes on. Indeed, an investment fund known as PUBLIC recently launched in London to help develop new technology that could improve processes in the public sector. Their portfolio already includes healthtech startup LocumTap.

Perhaps the recent announcement of increased funding for the NHS is reducing the demand for healthtech innovation from the private sector. That’s unlikely, however – key decision-makers within the NHS know that the private sector could be an important source of innovation (largely thanks to the initiative of Cera’s CEO, Ben Maruthappu). Increased funding for the NHS could feasibly see an increase in the resources available to maximise potential from partnerships with health technology startups, in order to make the delivery of health more efficient. Matt Hancock, the new Health Minister, does seem fairly tech-aware. If this happens, venture capital might not be so vital a resource.

So, a drop in venture capital funding may have little effect on this young sector. Additionally, funding levels for 2018 are still on course for the second-highest level of equity finance after 2017. It could well be that this dip in investor interest is just temporary.