Lloyd Price
- Jan 31

How can HealthTech Venture Capitalists solve their liquidity challenges?

Exec Summary:

Liquidity challenges are a significant pain point for many HealthTech Venture Capitalists. Their long investment horizons (typically 7-10 years) can lead to frustration for Limited Partners (LPs) who need to access their capital. Fortunately, there are several strategies VCs can employ to address these challenges:

Enhancing portfolio liquidity:

Structured Liquidity Provisions: These involve financial instruments like loans, senior equity tranches with preferential payouts, or buyback options, offering LPs controlled exits at pre-determined prices or intervals.
Secondary Markets: Facilitating secondary transactions (selling shares to other investors) within the portfolio can provide an avenue for LPs to exit before traditional IPOs or acquisitions.
Early exits: Encourage portfolio companies to explore early exits through smaller acquisitions or mergers, providing some LPs with liquidity sooner.

Optimising fund structures:

Shorter lockup periods: Consider offering shorter lockup periods for LPs, allowing them to reinvest or withdraw funds after a set time (2-4 years) instead of the entire fund duration.
Co-investment rights: Grant LPs co-investment rights in subsequent rounds for promising companies, creating additional liquidity pathways and aligning interests.
Clauses and fees: Negotiate clauses allowing LPs to sell limited amounts of shares during the fund life, or consider performance-based fees to align interests and incentivize faster returns.

Building a strategic network:

Collaboration with other VCs: Partner with other firms to create "liquidity pools" or syndicates where investments are shared, allowing for quicker exits across diverse portfolios.
Focus on sectors with faster exits: Prioritize investments in sectors with predictable exit paths like healthcare or fintech, potentially providing faster LPs returns and alleviating pressure.
Develop relationships with secondary market specialists: Build connections with secondary market brokers or platforms to facilitate smooth and efficient portfolio company share sales.

Transparency and communication:

Open communication with LPs: Maintain regular communication with LPs regarding portfolio performance, liquidity options, and exit strategies, managing expectations and fostering trust.
Data-driven reporting: Provide detailed investor reports with comprehensive portfolio data, performance metrics, and potential exit scenarios, ensuring LPs are informed and engaged.
Diversification: Diversifying fund portfolios across industries and investment stages can minimise risk and potentially offer alternative exit opportunities when some sectors face liquidity challenges.

Corporate Development for Healthcare Technology companies in EMEA

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How much have HealthTech Venture Capitalists invested in the last 5 years?

Healthtech has seen a surge in venture capital investment in the past 5 years, experiencing significant growth and becoming a major player within the VC landscape. Here's what we know:

Overall Investment Trends:

Investment volume: According to Rock Health's data, healthtech venture funding reached a record US$14 billion in 2020, almost doubling compared to 2019. While data for 2023 isn't yet available, the trend suggests continued growth.
Growth rate: Deloitte reports that venture funding for health tech innovators grew at record levels in 2020, likely continuing unabated in 2021.

Specific Data Points (as of September 27th, 2023):

Europe: Early-stage healthtechs raised $7.7 billion so far in 2023, indicating a strong European market despite a slight dip from the previous year.
Global: While a comprehensive figure for global healthtech VC investment in 2023 isn't available yet, Dealroom reports that US$12.5 billion was invested in 2022.

Factors Contributing to Growth:

COVID-19 pandemic: The pandemic accelerated digital healthcare adoption, driving investment in areas like telemedicine and remote patient monitoring.
Technological advancements: AI, big data, and other technologies are transforming healthcare, creating exciting new investment opportunities.
Increased focus on healthcare costs and access: Investors see healthtech as a potential solution to rising healthcare costs and improving access to care.

What are the main differences between US and European HealthTech venture capitalists?

The main differences between US and European HealthTech Venture Capitalists, incorporating insights from expert opinions and recent data:

Risk Tolerance and Investment Stage:

US: Generally more risk-tolerant, favouring moonshot ideas and disruptive technologies. Prefer early-stage ventures with higher potential returns, accepting longer investment horizons (7-10 years).
Europe: Generally more risk-averse, seeking proven traction and clear profitability paths. Invest in later-stage ventures with lower risk and faster exits (4-7 years). However, this gap is narrowing, with some European VCs adopting a more aggressive approach.

Investment Size and Deal Activity:

US: Larger deal sizes on average, with more mega-rounds ($100M+) fueling rapid growth. Higher deal activity due to a larger, more mature VC ecosystem.
Europe: Smaller deal sizes, with fewer mega-rounds. Lower deal activity due to a fragmented VC landscape, but steadily increasing (e.g., European HealthTech attracted €14.2 billion in 2022, a 27% YoY increase).

Focus Areas and Regulatory Environment:

US: Focus on biotechnology, digital therapeutics, and healthcare IT. Complex but flexible regulations, allowing for quicker innovation.
Europe: Focus on medical devices, diagnostics, and digital health platforms. Stricter regulations emphasising data privacy and patient safety, potentially slowing down development. However, regulations are evolving to encourage innovation (e.g., EU Medical Device Regulation).

Exit Strategies and Healthcare System:

US: Exits through acquisitions by large healthcare companies or IPOs. Fragmented system creates diverse exit opportunities.
Europe: Exits through acquisitions by smaller regional players or strategic partnerships. More centralized systems offer different exit dynamics. However, cross-border exits are increasing.

Additional Factors:

Talent and Ecosystem: US boasts a larger pool of experienced healthcare entrepreneurs and investors, with a more developed support ecosystem. Europe is building a strong pipeline and ecosystem, attracting talent through initiatives like the European HealthTech Council.
Cultural Differences: US VCs prioritize scalability and disruption, while European VCs often emphasize sustainability and social impact. However, both are increasingly adopting a hybrid approach.

Recent Developments and Trends:

Convergence: The gap between US and European VCs is narrowing due to increased collaboration, cross-border investments, and shared challenges like aging populations and rising healthcare costs.
Rise of Corporate VCs: Both regions see growing involvement of corporate VCs from large healthcare companies, driving innovation and partnerships.
Focus on Specific Sub-sectors: Both regions show growing interest in areas like artificial intelligence in healthcare, digital therapeutics, and personalised medicine.