Opinion
Seizing the HealthTech opportunity: Early-stage innovation takes center stage
"As investment activity fluctuates and new challenges emerge, investors find themselves at a critical juncture," writes Dr. Yaron Daniely, General Partner at aMoon Fund
After a challenging 2023, the tech sector has begun to show signs of recovery in recent months. We expect the HealthTech subsector, which was relatively resilient in 2022/3 to the economic slowdown but did suffer somewhat from the general macro trends, to follow suit. Fundamentals for the sector remain strong: Healthcare is essential with a $10 trillion global spend; accumulating investor dry powder in 2022/3 needs to be spent; treasure chests of biopharma companies are being put to use to fuel inorganic growth. Our view is that the time to invest in HealthTech is now.
Israel's HealthTech ecosystem is maturing rapidly – showing stability in the overall number of companies in the last four years, with a sharp increase in the amount of capital going into later-stage (growth) financing rounds and a sharp decrease in the number and size of early-stage rounds and new company formations. We believe some of this is the maturation of the digital health innovation wave, and the understanding that tech businesses addressing the Healthcare sector are dramatically different from tech businesses in other sectors. At aMoon we believe that we have a role in ensuring the continued growth of Israeli HealthTech companies from formation all of the way to commercialization.
Despite challenges faced in 2023, HealthTech remains a substantial part of the Israeli high-tech sector. One out of every five high-tech companies is now a HealthTech company, highlighting the sector's growing importance. Moreover, HealthTech is a top segment for employment, with approximately 66 thousand workers in 2023, underscoring its significance in driving economic growth and innovation.
However, it's crucial to address the decline in new HealthTech companies and investment activity observed in 2023. Investment activity hit its lowest point in Q4 ’23, with a staggering 87% drop in capital raised and a 60% decline in deal count for early-stage rounds compared to 2022. This data, sourced from our most recent report with IVC, underscores the current trends and challenges within the HealthTech sector. While this downturn is a stark reminder of the challenges facing the sector, we view it as an opportunity for strategic investment and support.
As investment activity fluctuates and new challenges emerge, investors find themselves at a critical juncture. How can they seize this moment in the HealthTech ecosystem to capitalize on emerging opportunities?
With the grounding of the digital health vertical, we are witnessing a resurgence in investments and exits within the MedTech (Medical Devices) sector in Israel. The maturity and collective expertise of MedTech businesses in Israel, coupled with the entrenched presence of major industry players, underpin the sector's resilience, promising sustained performance in the foreseeable future.
Looking ahead, the cyclical nature of healthcare markets suggests an imminent multi-year surge fueled by additional scientific and medical breakthroughs, particularly in areas like immunology and neurology following cardio-metabolic and GLP1 disruption. Israel stands poised to reap substantial benefits from this surge, given its abundant talent, innovation, and available capital. We anticipate that early-stage investments in the biotech and digital health sectors, particularly those from the 2024 vintage, will yield robust returns, reminiscent of VC investments made in the aftermath of the 2000 and 2008 crises.
The moment to dive into Israel's HealthTech sector is ripe. As market conditions align favorably and our ecosystem matures, we stand on the brink of transformative growth and revolutionary HealthTech innovation presenting unprecedented opportunities to accelerate cure.
Dr. Yaron Daniely is General Partner at aMoon Fund
