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Investors Share Perspectives on 2023 Deals and Offer a Look at Emerging Areas of Interest

Investment trends will be a big theme at the HLTH event at the Las Vegas Convention Center October 8-11. In the runup to the conference, investors from Bessemer Venture Partners, Cleveland Clinic Innovations, Third Culture Capital and Intuitive Ventures offered their takes on 2023 investments.

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The fourth quarter of the year is a fitting time to look back and look ahead to consider investment trends in healthcare and what to expect in 2024. In response to emailed questions, investors shared perspectives based on companies they’ve backed and areas of increasing interest.

Investment in healthcare is also a big theme at the HLTH event taking place October 8-11 at the Las Vegas Convention Center. Click here to view the agenda, speakers, exhibitors and to register. Here is a look at some of the HLTH panel discussions relating to investment.

The AI Hype Cycle Coaster

Sunday, October 8, 1:10 pm to 1:50 pm 

The AI hype cycle promises a wild ride and health investors have been quite the thrill seekers. The healthcare AI market is expected to reach over $102 billion by 2028, ushering in a flood of new solutions claiming to have the ability to transform our broken industry. In a drying up funding environment, AI has been our life source. Will the thrill ride end or are we in for a long journey? Experts dive into all the factors at play to determine if this trend of extreme optimism is warranted or if the skeptics will prevail.

The Great Leveling Out

Monday, October 9, 11:00 am to 11:40 am

The first half of 2023 resulted in a 33% drop in digital health funding, leaving us on track for the lowest funding year since 2019. There is less money to go around and fewer investors cutting checks, but all hope is not lost. Like a phoenix rising from the ashes, there will be several resilient companies with strong business models, sound leadership and just the right idea to come out on the other side of this market lull. So who is making it to the other side and who will be left behind in the digital health graveyard? Bessemer Venture Partners will unveil the data from an inaugural State of Health Tech report, and chat live on stage with top investors about all things over-hyped, over-funded, and overvalued to level the playing field as we go into 2024.

“The recent decline in healthcare technology venture capital funding and public market stocks provides an understandable reason for a ‘glass half empty’ view on the market. But we are optimistic and looking at the bigger picture: overall health tech funding is six times what it was when I started investing in the sector in 2012,” Steve Kraus, Partner, Bessemer Venture Partners said. “Like any maturing market, there are changes and pivots we need to make to build a resilient future for healthcare innovation, and lots to learn from the last few years. We dive into these market dynamics, benchmarks, and best practices for health tech businesses and the trends we see emerging for 2024 in our State of Health Tech report.”

Who Runs the World… of Health

Monday, October 9, 11:50 am – 12:30 pm

Despite women constituting 50% of the population, a mere 1% of healthcare research and innovation investment is directed towards female-specific conditions beyond oncology. There is the clear societal need and sound business case for more health services and solutions for the specific health needs of women from menstruation to menopause to vaginal health. As most investment firms remain male-dominated, pitching solutions — like a smart menstrual pad — to a room of men is not that simple. Leaders have not let that stop them and are proving that investing in women’s health is not just imperative for improving the lives of women globally, but it also presents tremendous opportunities for value creation. Hear us roar!

A Storm of Megadeals

Monday, October 9, 1:20 pm to 2:00 pm

Digital health stocks started 2023 trading almost 50% lower than they did at the start of 2021, making a public send off look a lot less appealing to startups teetering on the edge of an exit. While the public markets have chilled, the consolidation space is just heating up, with more than half of deals in the first half of the year being mega-deals, rounds worth $100M or more. As the healthcare landscape is being reshaped by new technologies, a tense political environment, and economic uncertainty, companies are making bold moves to adapt their business models for long-term success. The FTC has certainly taken notice and in turn, put healthcare deal-making on notice, with proposed changes on the horizon that can directly impact deal volume. Analysts, investors and bankers all have a hot take on this fluctuating digital health weather pattern!

Jon David Friedland is a partner with Cleveland Clinic Innovations focused on medical device investments.

What types of medical device technology are you interested in?

“Our priorities in medical device investing are well aligned with our clinical and research strengths at Cleveland Clinic, as the majority of our portfolio companies are licensees of Cleveland Clinic intellectual property. Most of these companies are in what we call our three ‘power alleys’ of medtech: structural heart, neurostimulation and surgical visualization and navigation.”

What criteria do you look for?

“We have a fairly exhaustive list of objective criteria against which we evaluate our proposed investment, which includes large target markets, strong intellectual property, a unique, proprietary and economically compelling solution, a clear regulatory pathway and technology that has significant potential to enhance patient care. For opportunities that do not originate at Cleveland Clinic, it is critical for us to identify a subject matter expert at Cleveland Clinic (a clinician or researcher) who is willing to champion the opportunity.”

What are some examples of recent investments?

“We led a Series B investment in Enspire DBS, which is initiating its Phase II study for deep brain stimulation as a therapy for treatment of hemiparesis in ischemic stroke patients (a peer-reviewed paper was also recently published in Nature Medicine describing the impact on patients enrolled in the Phase I study).

“We also participated in a funding [round] for MediView XR alongside GE Healthcare, Mayo Clinic Ventures and others to support the development and commercialization activities. The company recently received 510(k) clearance for its flagship XR-90 visualization solution.”

What healthcare investment trends and deals for the year to date do you find particularly interesting? 

“Artificial intelligence (especially generative AI) has been the hot phrase of late, but we have been commercializing and supporting a range of AI-enabled solutions long before it became trendy.

“Our thesis around surgical visualization & navigation is built on the premise that the operating room will continue to see transformative advances that will improve patient outcomes, provide better information to the clinician and expand the scope and population of clinical users to continue to advance medicine, a hallmark of our Innovations strategy.”

Julien Pham is founder and managing partner of Third Culture Capital

Looking back on what has transpired this year, what are some of the emerging medtech and diagnostics trends that you’re seeing?  

“We have seen a steady supply of diagnostic tools and solutions in our dealflow despite the fact it is the sector that is a bit less predictable because it relies on regulatory steps, a robust supply chain, and manufacturing capabilities, compared to a traditional digital health startup. 

“The economic environment, i.e. inflationary patterns, and certain societal shifts, have put pressure on the sector. Particularly the experience of confinement during the pandemic, the evolving trend of remote work, and challenges to the supply chain that are finally showing signs of recovery, might forever affect the sector.

“Trends I see emerging include more interest in ‘at home’ diagnostic solutions, further and deeper merging of technology and traditional diagnostics, which could result in development and increased adoption of biosensor technologies, and continued interest in digital companion diagnostics alongside existing and new medications.” 

Did your firm make any investments in companies in areas you previously had not invested in? 

“Yes, we invested in Zuri Fertility, a Chicago-based care navigation solution for fertility care.”

What are some of the criteria that guide your investments? 

“We invest in seed and pre-seed stage health tech and techbio companies that are innovating in areas where access to care is lacking or not equitable, and whose market or utilization is anticipated to grow, as a result of more adoption of novel technologies, novel business models, and optimized care workflows. 

“Ultimately, we frame our investment objectives around the Quadruple Aim of improving outcomes for patients, reducing the cost of care delivery, and improving the experience of care for patients and providers.” 

Looking ahead, what are some of the challenges and positive developments that could affect healthcare investment in the next 12 months?

“Some of the challenges in the next 12 months will likely continue to be related to economic uncertainty. We do think that early stage startups will be able to raise capital at reasonable valuations but will need to scale in a more frugal way.

“I am also excited to see how we explore the use of AI and specifically generative AI in early experiments in digital health. I’m not quite sure generative AI for care delivery is quite ready for prime time yet. “

Oliver Keown is managing director with Intuitive Ventures

Looking back on what has transpired this year, what are some of the emerging medtech and diagnostics trends that you’re seeing?  

“We see increasing awareness of the threat levels and need for more sophisticated cybersecurity for medical devices solutions. Also, [there is] lots of renewed enthusiasm for AI in healthcare — driven, of course, by the generative AI hype. But also an accelerating acceptance and adoption of startup solutions that have been working hard for some time on real-world applications and evidence-building for AI-powered clinical decision support and diagnostics.”

Did your firm make any investments in companies in areas you previously had not invested in?

“We invested in Capstan Medical, a future leader in the field of structural heart and endovascular robotics that is pioneering new therapies that will increase access to an underserved population.”

Looking ahead, what are some of the challenges and positive developments that could affect healthcare investment in the next 12 months?

“Intuitive Ventures is bullish for the future. Deals might continue to take a while to close and some investors will remain risk averse, but there is capital available for great teams and technologies serving large unmet needs.”

If you’d like to be part of the investment trends conversations at HLTH, click here to view the agenda, speakers, exhibitors and to register.

Photo: drogatnev, Getty Images