How will economic downturn affect healthtech investment?

Amid global uncertainty, the real winners when it comes to investment will be those that back ventures solving real problems for people on the ground. Sam Sturm, chief venture architect of Founders Factor Africa, looks at the impact of the economic downturn on investment in Africa’s healthtech sector. 

At the height of the Covid-19 pandemic, the world was primed for a substantial increase in health and biotech spending and investment. Governments and the private sector alike promised to dedicate funding so that they would be adequately prepared for the next pandemic if or when it came.

Over the course of 2020 and 2021, those promises appeared to be materialising. Globally, healthtech companies raised US$57.2 billion in 2021, a 79% increase from the US$32 billion raised in 2020, which itself was significantly higher than the approximately US$20 billion raised in 2019. African health and biotech start-ups, meanwhile, benefitted to the tune of US$392 million, an 81% increase from the investment received in 2020.

Over the course of 2022, however, the global investing landscape has changed dramatically. Spooked by geopolitical uncertainty, a bear market, and rising interest rates amid record-high inflation, investors have retreated to traditionally safer waters, with global venture capital funding hitting its lowest point in two years. Health and biotech start-ups have not been spared the effects of this slowdown either.

Amid this investment slowdown, what is the likely impact on the African health and biotech start-up ecosystem?

Investment remains strong

Those paying attention to the African VC and investment space would have cause to believe that the continent comes away unscathed. After all, African start-ups raised a record US$3.5 billion in the first half of 2022, a 131% increase on the same period in 2021.

Simultaneously, the continent has enjoyed a sustained recovery in economic growth post the pandemic, with Sub-Saharan Africa expected to grow 3.7% in the second half of 2022. In isolation, this level of growth is high if not remarkable. Yet, given the recessionary headwinds blowing through the global economy, especially those classed as “developed” economies, Sub-Saharan Africa is a beacon of exciting possibilities.

It’s also worth bearing in mind that, according to the African Venture Capital Association, 16 Africa-focused VCl funds announced a final or interim close in the first half of 2022, with a cumulative fundraise of close to half a billion US dollars (US$495 million). That funding will play a vital role in supporting the growth of the  African start-up ecosystem, health and biotech start-ups included.

Given that the African healthcare market is expected to be worth US$259 billion by 2030, that’s an opportunity that cannot be ignored.

If the economic headwinds of 2021 and 2022 do eventually impact Africa’s VC ecosystem, it should not detract from the continent’s long-term potential. That’s especially true for the health and biotech vertical, which accounted for just 8% of the US$4.9 billion raised by African tech start-ups in 2021.

The room for growth is exponential. Healthcare is a universal concern. In a region that’s home to nearly 1.2 billion people across 46 countries, there are numerous challenges that innovative start-ups are uniquely positioned to address. Our own portfolio of healthtech start-ups has given us a first-hand taste of the depth of innovation in the sector.

Regardless of current global economic conditions, a long-term approach that focuses on that potential can  lead to the emergence of sector-defining ventures that create real change for their users on the ground.

Even if there is a pullback in VC funding in the short-term, committed investors, including our healthtech investment partners, understand that real growth and change will be achieved over the long haul. They will be able to maximise the value their investments produce and help start-ups focus on building their businesses.

African health and biotech start-ups may find it harder to raise funding and investment in the next few years, yet these negative conditions are not permanent. They do not diminish the sector’s potential on the continent, with the winners likely to be those that back ventures that solve real problems for real people on the ground over the long term.

• Sam Sturm is the chief venture architect of Founders Factor Africa. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views or positions of Ventureburn.

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