Key Takeaways

  • Record government relief spending, focus on vaccine development, mass adoption around virtual care, and the arrival of the virtual IPO roadshow are creating strong tailwinds for the sector going into 2021.
  • Full-year 2020 projections indicate that global (US, China/Hong Kong and Europe*) total investment in the healthcare industry may reach $52.5 billion, compared to $38.5 billion in 2019.
  • Healthcare-specific investors, typically those familiar with the complexities of healthcare investing, are fueling the flames of interest for healthcare SPACs.

Q&A with Katherine Andersen

How is COVID-19 affecting the venture-backed healthcare ecosystem?

The public markets have been on fire for the past eight years or so, and the COVID-19 pandemic has only accelerated this activity by shining the brightest of lights on the global healthcare industry. Record government relief spending, focus on vaccine development, mass adoption around virtual care, and the arrival of the virtual IPO roadshow are creating strong tailwinds for the sector going into 2021.

You can see this acceleration in the success of public market companies advancing the convergence of healthcare and technology, particularly those focused on drug development and telehealth. Healthtech has seemingly been catapulted forward by years during COVID-19, and the mass adoption helps ensure we won't be going back. The convergence is only going to ramp.

All told, the global healthcare innovation ecosystem (US, China/Hong Kong, and Europe*) has raised $35 billion between January and August 2020 for venture-backed healthcare companies, led by the US with $22.6 billion (65%), followed by China with $6.7 billion (19%) and Europe with $5.5 billion (16%).

Looking ahead, what the does healthcare investment landscape look like?

Healthcare will have a leading role in getting us out of the pandemic, and the insatiable demand for more innovative therapies to support human health makes that clearer than ever. Of course, we live in an uncertain world. Unforeseen macroeconomic events and the outcome of the US election—which may affect speed to market for new drugs and vaccines, foreign investment in US companies, and healthcare reimbursement policies—could dampen activity.

For now, there are a lot of tailwinds. Full-year 2020 projections indicate that global (US, China/Hong Kong and Europe*) total investment in the healthcare industry may reach $52.5 billion, compared to $38.5 billion in 2019. The surge is led by biopharma and dx/tools, which are being supported by large crossover-backed rounds. There have been 81 $100 million+ venture-backed healthcare rounds, nearly triple the number recorded in 2019. In Q2 2020, China had its second largest quarter on record, reaching $3.5 billion in investments.

Give us an overview of how the pandemic is affecting healthtech investing.

Here’s one illustration of the impact of the pandemic on investing: It has pushed healthtech to the top in terms of deal count in the US, surpassing biopharma deals—and if it holds through the end of 2020, that would be a first. There were 301 healthtech investments compared to 261 for biopharma through August 2020. Still, the capital invested in biopharma companies over that time reached $10.6 billion compared to $7 billion for healthtech.

The move to a virtual world has raised the urgency for healthtech from a nice to have to a need to have. As a result, we’re expecting to see more virtual clinical trials, increased remote monitoring of patients and an expansion of telehealth in the delivery of care, including mental health services. While some insurers are now restricting coverage of virtual visits, telehealth overall is poised to grow.

What is your view of healthcare exits, IPOs, and SPACs?

Healthtech and biopharma companies are being rewarded with premium valuations in the public markets, which likely will drive more IPOs and secondary market activity. The truncated roadshow—shortened from a typical 10 days or so of travel to three days over Zoom—is creating a new dynamic for tech and healthcare IPOs. Decision making is being forced into a much shorter timeframe, and investors, sometimes for fear of missing out, are jumping in and helping drive red-hot market activity. SPACs, in fact, are not new and used to be viewed as the last-resort option for companies struggling to go public. As with pure tech, healthcare companies may see a SPAC as a more straightforward, more efficient, and less expensive path, avoiding the regulatory hoops and time-consuming steps required to complete an IPO. Healthcare-specific investors, typically those familiar with the complexities of healthcare investing, are fueling the flames of interest for healthcare SPACs.

What additional pros and cons do you see with SPACs?

The perceived benefits of a SPAC route really do come down to time and cost savings. Founders view SPACs as requiring less in upfront capital while the SPAC investors benefit from the founding team’s experience. Companies merging with a SPAC view it as an alternative to the IPO path that is both less expensive and easier (faster) to execute. But with operational teams in place before acquisition talks start, the target company may have less negotiating power. On the flip side, if the number of new SPACs continues to ramp significantly, it will likely become challenging for these blank-check companies to secure viable target companies, giving quality targets an upper hand.

The longer-term prognosis of SPACs is up in the air, in large part due to mixed SPAC performance across sectors so far and the increasing number of new blank-check companies bubbling to the surface. If we continue to see this significant ramp in SPACs, it will become increasingly challenging to compete for viable targets. And time is a key challenge or pressure point—in most cases, SPACs have 24 months to acquire a target company. If the supply of targets dissipates, that could spell disaster for some SPACs.

Is cross-border healthcare investing being affected by US-China tensions?

What’s most notable here is that geopolitical and macroeconomic events have not slowed private, venture-backed healthcare companies from raising money and closing active deals. From January through August 2020, New York City and Shanghai lead the world in healthcare deals, each with 71 deals and investment of $2 billion. Rounding out the top five cities are San Francisco with 64 deals ($2.5 billion), Cambridge, Mass. with 51 deals ($2.6 billion), and Beijing with 43 deals ($729 million).

Likewise, from January to August 2020, we have seen an uptick in China-based participation in deals with companies based in the US and Europe. The total funding for US and European deals syndicated with China-based investors amounts to $5.6 billion for this period, well above the full-year totals for 2018 ($4.3 billion) and 2019 ($3.5 billion). These cross-border deals have been driven largely by investors with healthcare interests as opposed to tech or crossover investors with more general portfolios.

What additional healthcare sectors are seeing increased interest by investors?

An unfortunate pandemic effect is the rise in mental health challenges. With that comes heightened awareness—a positive development—and calls to expand insurance coverage for mental health. We expect more investment during and post-pandemic in companies focused on delivering mental health services, particularly through virtual alternative care. The demand for mental health treatment is here to stay.

As the Centers for Medicare & Medicaid Services (CMS) approved waivers to allow for payment of health services delivered virtually, telehealth and the remote monitoring of patients have been on the rise.

What other legacies of the pandemic do you see?

Despite huge impediments to travel, healthcare deal making has reached new levels. It turns out the virtual world is more efficient for many activities, including IPOs. While we may miss some perks of going to global conferences and seeing colleagues face-to-face, the future for networking, as it is for healthcare, is going virtual.


In early January 2021, SVB and our colleagues at SVB Leerink and SPD Silicon Valley Bank, a Shanghai-based joint venture between SVB and Shanghai Pudong Development Bank, are launching INNOVATE NEXT.



This virtual conference for the global healthcare community will bring together healthcare founders, corporate leaders, and investors from the US, Asia, and Europe to exchange perspectives on the ideas and advancements around the convergence of healthcare and technology.

The COVID-19 pandemic is underscoring the critical role of venture-backed healthcare investment to drive innovation in the urgent quest for solutions. I am hopeful that we're going to see many advancements in several healthcare sectors, and with increased global focus, this should lead to more successful outcomes for fighting illness and disease around the world—improving the quality of life for everyone.

Investor Insights

Timely insights and best practices for private equity and venture funds, firms, and executives.
More on this topic


Editor's Top Picks
Read this next

The pandemic tests entrepreneurs' resilience

The COVID-19 pandemic and resulting economic and societal implications have taken a heavy toll on the nation’s mental health, including Silicon Valley’s entrepreneurs.
Read more

Private Equity and Venture Capital

Silicon Valley Bank has a 30-year track record of commitment to providing private equity and venture capital solutions tailored to your goals. Learn more. Learn more

Katherine Andersen
Written by
Katherine Andersen
Katherine serves as Head of Life Science & Healthcare Relationship Banking and sits on the board of SVB's joint venture in China, SPD Silicon Valley Bank.
This article appeared in the Pitchbook-NVCA Venture Monitor report. Read other articles and learn more about our partnership.

PitchBook Data and National Venture Capital Association are unaffiliated with SVB Financial Group.

This material, including without limitation to the statistical information herein, is provided for informational purposes only. The material is based in part on information from third-party sources that we believe to be reliable, but which have not been independently verified by us and for this reason we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decision. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation, offer or recommendation to acquire or dispose of any investment or to engage in any other transaction.

Insights from SVB Industry Experts

 
SVB experts provide our customers with industry insights, proprietary research and insightful content. Check out these related articles that may be of interest to you.

Amid Pandemic, Global Venture Investors See Opportunities in China

 

Debt is on a roll — and there could be more to come

 

Webcast: The evolution of US VC during the COVID-19 crisis

 

Family Offices Are Becoming Sophisticated Venture Investors

 

What We’ve Been Building

 

A Question of Capital: What first-time founders should consider when raising funding from those who know