The healthcare market stabilized in 2023. The rate of new investments fell 28%, however, the top 10% of deals still successfully secured substantial funding rounds with step-up valuations. A significant contingent of companies raised new rounds at revised valuations, adhering to the notion that a “flat valuation is the new up-round”. However, almost half of 2023 financings obtained insider rounds to meet revised milestone expectations and, ideally, pave the way to new investor-led rounds.

VCs faced intricate investment decisions themselves. Those without new funds had to navigate existing portfolio support, considering return expectations, dry powder, and the timing of their next fund. Some funds downsized as their own fundraising encountered setbacks. We are not out of the woods yet, as we anticipate many demanding financings situations in 2024.

Healthtech

In 2023, there was a 42% reduction in investment and a 32% decrease in deals. Investors focused on portfolio management and decreasing burn rates to extend runways through insider bridges or extensions of prior rounds. That said, 2023 still saw growth above pre-pandemic levels, denoting market stabilization and a return to right-sized deal sizes and valuations.

Med Device

First-financing activity started strong in Q1, but gradually declined each subsequent quarter due to investor conservatism, impacting deal pace. Overall, total med device investment remained stable, however deal count was down by 20%. Companies within the neuro and imaging sub-sectors raised increased dollars, while non-invasive monitoring companies witnessed a significant decrease in funding.

Biopharma

Insider rounds accounted for 40% of deals, however VCs returned to leading new Series B deals. Some pre-clinical deals too far away from data were deemed too risky to be fundable in the current environment. 2H 2023 saw a resurgence of crossover investors leading prominent deals - choosing teams, themes, assets and syndicate with step-ups to post-money values reminiscent of 2021. IPOs and private M&A were limited in 2023, but public M&A of recent IPOs remained robust.

Dx/Tools

Early-stage investment in dx/tools significantly decreased after Q1 as both dx tools and dx analytics first-financing investments dried up by more than 40%. Overall, dx/tool investment was down in 2023 but remained stable compared to the downcycle pace observed in 2H 2022. Despite the availability of valuation resets, new investors are discerning, and growth investors have largely exited the market.