What to know before investing in European healthtech
David Buller, Managing Partner of KELES, and Laurent Van Lerberghe, Founder and Managing Partner of KELES.
Guest post by David Buller, Managing Partner of Keles Care, and Laurent Van Lerberghe, Founder & Managing Partner of Keles Care.
The European healthtech sector is going from strength to strength, buoyed by sophisticated innovation networks, a strong appetite for disruption amongst both buyers and payors, and a huge demand for new tech solutions to chronic pain points.
 As AI, technology and data collide, a myriad of opportunities are being seized by ambitious entrepreneurs. According to Dealroom data, digital care, digital pharma, and health IT are experiencing rapid growth, positioning healthtech as one of the fastest-growing investment segments and the 7th most funded industry in Europe.Â
Despite European VC funding in healthtech reaching $3.3bn in 2023, it remains very clear that there is a significant and urgent need in the sector for fresh capital to bridge the funding gap and unlock the growth potential of mid-late stage startups and spinouts.Â
However, for funders, making the right capital deployment choices in this comparatively young and dynamic sector requires a nuanced understanding of fluctuating and regionally-specific market dynamics, regulatory frameworks, and collaborative ecosystems.Â
As digital health investors with diverse European portfolios and prior experience in the roles of healthtech founder, advisor, investor and acquirer, here’s our summary of what GPs and LPs need to know before becoming active in this investment market.Â
Market dynamics, trends and opportunitiesÂ
The European healthtech market is characterized by its diversity and innovation. UK, Germany, France, Benelux and the Nordics are leading the charge, with Switzerland catching up fast. Central and Eastern Europe present untapped markets with growing healthcare needs and increasing digital adoption, and should be closely watched. Investing in these regions could yield high returns.
It is estimated that by 2026, AI-based applications could generate savings of $150 billion for the healthcare industry. European companies with AI-powered offerings are, unsurprisingly, performing strongly in a sector which boasts a wealth of valuable data yet remains plagued by onerous processes in need of automation. At this moment, European startups are applying AI to enhance medical imaging, expedite drug discovery, facilitate digitized clinical trials, and combat age-related diseases. Innovators like Qureight, CluePoints, Turbine, and Cerebriu are at the forefront of these advancements. Their contributions have the potential to dramatically improve research pipeline productivity, extend human life expectancy, and enhance the quality of life in later years.
Getting to grips with the European regulatory landscape
Navigating the regulatory landscape in Europe is challenging. Currently, the European Union (EU) has stringent regulations to ensure the safety and efficacy of healthcare products and services, including Medical Device Regulation (MDR) and In Vitro Diagnostic Regulation (IVDR), General Data Protection Regulation (GDPR). In addition, digital health products must obtain CE marking to be marketed in the EU, and/or UKCA marking to be marketed in the UK. This involves rigorous conformity assessments and clinical evaluations, a process which can be both lengthy and time consuming. What’s more, this regulatory landscape is in constant flux, even more so when governments are in transition.Â
Europe will see nine parliamentary elections in 2024, of which four are likely to result in a notable change in government and/or policy direction. Analysts expect political fragmentation to remain a key trend in Europe throughout 2024 and into 2025. Â
With the possibility of leadership change comes a great deal of uncertainty. Specifically for the health sector, the second half of 2024 could bring consequential changes to research and development programmes, health service funding, public health initiatives, reimbursement models, cost control measures, support for innovation and startups and more. For example, in the UK, the new Labour government has pledged to increase the pace at which new technologies are rolled out into the health service, but clarity on the strategy behind this has yet to be shared. For investors, staying one step ahead of these changes and their consequences is critical.Â
The role of pan-European collaboration and partnerships
It is becoming increasingly essential for healthtech startups to build and maintain relationships with life science companies, pharmaceutical companies, and major hospitals to unlock early scaling opportunities whilst they work with regulatory and reimbursement bodies to get access to public markets and patients. Pan-European collaboration is a cornerstone of success for healthtech companies, and the EU actively promotes cross-border research and innovation through various funding programs and initiatives.
Research and innovation funding
Horizon Europe is the EU’s key funding programme for research and innovation with a budget of €95.5 billion. The program fosters collaboration and enhances the impact of research and innovation in developing, supporting, and implementing EU policies while addressing global health challenges. It aids in the creation and more effective dissemination of exceptional knowledge and technologies. Many European healthtech companies are eligible to access Horizon funds, and the scheme is a valuable source of income for many of the regions’ most impactful scaleups.Â
Academic and industry partnerships
Collaborations with academic institutions, research centres and industry players are key to driving innovation in European healthtech. In England, the Universities of Oxford and Cambridge both sit at the heart of thriving public-private ecosystems that have produced Healx, Exscientia, Oxehealth and many more by providing access cutting-edge technologies, funds and expertise. In addition, strategic partnerships with global healthcare players - including pharmaceutical companies and hospital groups - are an impactful way for companies to enhance market reach and increase valuation.
Diversity is essential for strong performanceÂ
Studies have repeatedly shown that more diverse investment teams pave the way to better returns. At GP level, diversity of industry and experience across finance, technology, operations and business building is critical. Indeed, the European Investment Fund has stated clearly in recent conferences that diversity criteria will become more stringent when investment decisions are made in new and successor funds. This same principle holds true for startups, where diversity in the founding team - and across key functions - makes a huge difference and should be strongly favored.Â
An opportune moment to improve global health outcomesÂ
Europe is overflowing with innovation, providing both deep and extensive deal flow of high-potential scale ups tackling some of the biggest problems in global healthcare, but the capital isn’t currently available to support successful later-stage scaling.
Investing in European healthtech presents a compelling opportunity, and with the right knowledge, diversity of experience, and a targeted approach, investors can maximize their returns and contribute to the advancement of healthcare innovation in Europe.
