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Medical tech (medtech) startups found themselves flush with cash a couple of years ago for quite obvious reasons. Pandemic-fuelled investment pushed VC funding for medtech and health-focused companies to unforeseen heights, ensuring that exemplary companies creating innovative technology to boost our collective health got the backing they deserved.
But times have certainly changed. The tech industry now finds itself reckoning with a banking crisis and VCs shifting priorities (and funds) towards scorching hot generative AI projects. That shift has caused funding for early-stage medtech companies to decline significantly, with numbers sliding by the billions across the board for digital health projects.
Related: Areas in Medtech That Need Innovative Entrepreneurs
Why is this happening?
To clarify, the funding well has not completely dried up for medtech projects. But the industry has become far more competitive now that the pandemic has moved to the periphery of public consciousness. But it’s unfair to place the entire blame for VCs pivoting away from medtech solely on the world emerging from COVID; there are other contributing factors driving entrepreneurs and liquidity providers to consider other industries.
For one, medtech is not a trend-proof industry immune to wider economic conditions. And although the digital health industry has seen a huge boom in the past decade, macro-level trends do eventually shift to something newer and more enthralling. AI has become a scene-stealer in terms of tech funding, and while many medtech companies champion AI use to help upgrade multiple aspects of healthcare, other projects might feel like there’s no outside funding to turn to.
Another factor that could contribute to the slowdown of VC funding in medtech is the pace at which health developments move, particularly in testing and regulation. While blockchain and AI projects can enjoy building in a regulatory gray area (for now), any medtech device or solution has to undergo strict review to become widely available to consumers. This is where we often see a collision when revenue-driven startup ideologies and rigorous healthcare standards meet, whether it’s the FDA or another regulatory body.
With this in mind, it makes sense as to why the VC mentality doesn’t always mesh well with an industry that relies heavily on regulatory clearance to progress. A growth-minded VC familiar with the nimble pace of a spritely tech startup is probably in for a rude awakening when a medtech company can’t grow at the speed it wants it to.
But there are a few ways for medtech companies to adapt in a funding drought, whether it’s exploring different funding sources or reevaluating their value proposition.
Related: 3 Alternatives to Venture Capital Funding for Startups
What can medtech projects do?
In a way, the medtech industry is much better equipped to survive a downturn in outside funding because it was one of the first modern tech sectors to learn about the importance of flushing out bad actors. It’s a harsh lesson that nascent industries such as crypto now face and generative AI projects will likely face in the future as the moral and societal problems of its development are called into question, even by its industry peers.
And when a scandal involving generative AI eventually does happen, outside funding will inevitably turn back towards industries that could withstand it the first few times.
It’s never a good indicator when companies in burgeoning tech sectors make cuts to their ethics teams; this is another leg up that medtech companies have over other industries. The ghost of Theranos still looms large over any public-facing medtech development, which is shockingly effective at keeping most projects ethically in line. Medtech founders understand that you can’t build products that affect people’s health with an MBA and a dream; it is a field that requires some sort of background and experience to execute effectively.
That being said, there are also spaces in medtech development for entrepreneurs to explore that don’t directly impact consumers’ health but assist the medical sector in other ways.
Entrepreneurs and developers in medtech should shift their focus on projects that either address the most common pain points in healthcare or projects that bridge different industries to create innovative healthcare solutions. It requires more creativity, but repurposing technological facets of other industries can help address very real challenges in healthcare.
For instance, in 2022 alone, more than 40 million Americans had their medical records exposed through data breaches according to an analysis from USA Today. These breaches only build on a recurring critique of the barriers for patients to have access to their medical records across health systems, either for their safekeeping or to understand their own medical history and needs.
To help solve these issues, smart-document SaaS provider ShelterZoom developed one of its key products for use in healthcare to empower patients to have full access and control of their medical records. The idea is to help patients outmaneuver the crushing bureaucracy many people face when seeing multiple doctors or specialists.
This clearly illustrates how development that utilizes tech infrastructure from a completely unrelated industry can bolster medtech’s positive impacts through specific, clever reinterpretation. And these kinds of developments can often clear regulatory hoops much faster than medtech that directly impacts medical practices and procedures.
It’s understandably difficult for medtech companies to get the same amount of attention that they used to. But it’s not impossible to stand out to outside investors, even when the trends aren’t necessarily in an industry’s favor. Likewise, it’s important to look outside of the VC bubble to help drive growth-stage development, and part of that requires creating a product that can stand on its own merits.