New York health-tech investment boom faces headwinds in 2022

Boosted by the conditions of the pandemic, city healthcare startups pulled in record funding from venture capital investors in 2020 and 2021—powering local hires, real estate leases and new products.

Data for the first months of 2022, however, indicates that the money is no longer flowing quite as fast as it was. But industry insiders say many of the changes that boosted investment into health technologies are here to stay.

"We may well see a slowdown, but the investment is still way ahead of where we were in 2019," said Bunny Ellerin, president of the New York City Health Business Leaders, an industry group for healthcare companies.

Health-tech startups based in New York raised $9 billion in 2021, more than doubling a record total in 2020, according to a report from New York City Health Business Leaders.

The group has not yet released its report for the start of 2022, but Ellerin said funding is about even with the last three months of 2021, when the first indications of a slowdown emerged. Local health startups raised $1.4 billion that quarter, the group found, while total funding surpassed $2 billion in every quarter of 2021 before that.

The private investment market is feeling the sting of rate-interest hikes and uncertainty driven by the ongoing pandemic and Russia's invasion of Ukraine. The initial public offerings that provide big returns to early investors are near nonexistent so far this year. There have been 18 IPOs this year, worth $2.1 billion total, compared with 101 worth $40 billion by this point in 2021, according to Renaissance Capital.

Even in the exuberant startup investment market last year, many tech firms that went public saw their value decrease.

Beyond that, it is tricky to forecast demand for many of the health-tech products that were necessities in 2020 and 2021.

"This year consumers and physicians are determining the best uses for telehealth, whereas there was no other choice during the heart of the pandemic," Ellerin said.

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Big funding rounds

That hasn't stopped all funding, of course. Recent large health-tech funding rounds include a $150 million investment into Flatiron District telehealth company Ro and $105 million for in-home care provider ConcertoCare, also based in the Flatiron District.

"There have been companies raising meaningful financing rounds in 2022, so it is certainly not that no one can do it," said Jordan Nof, managing partner at Tusk Venture Partners, which has made several health-tech investments. "But the speed at which companies were able to raise money and build really large businesses was unprecedented in 2020, 2021."

That was never going to last forever, Nof added, but investors are still looking to make deals. Venture firms have a lot of capital raised from their partners over the past two years that needs to be put to work. The pace is just moderating.

Healthcare is still attractive to many investors overall. It is an increasingly large part of the country's gross domestic product and still seeing significant demand for innovation driven by COVID-19, noted Peter Micca, partner and national health-tech leader, audit and assurance, at Deloitte & Touche LLP.

"The demand for care is really going to continue and far exceed supply for the near term," Micca said. "So while industry sectors are always impacted by macroeconomic conditions, [healthcare] is insulated to a degree."

A recent report from Deloitte found investment in med-tech, which refers largely to companies making government-regulated products, increased 67% from 2017 to the end of 2021, to reach nearly $20 billion.

Midtown-based diagnostic testing company LetsGetChecked on March 29 said it would acquire genome-sequencing company Veritas Genetics and its spin-off, Veritas Intercontinental, though terms were not disclosed.

NoMad-based telehealth company Thirty Madison, best known for hair loss and migraine treatments, agreed in February to combine with Nurx, an online company best known for providing access to birth control products—with no financial terms disclosed.

M&A to heat up

Experts anticipate that merger and acquisition activity will pick up this year in the industry.

"I do suspect that we'll see more and more consolidation among the earlier-stage digital health companies," said Nisha Dua, managing partner and co-founder of BBG Ventures. "Each care delivery model category is just getting more and more crowded. But all in all, there are huge opportunities still on the table in telehealth, asynchronous care, health insurance."

Ellerin said investment in health-tech is important for the city overall, as fast-growing startups hire a lot of people. But a tight labor market means that hiring could continue for some time even if investment slows. A poll of health-tech firms by New York City Health Business Leaders found that the ability to find talent is a top concern for most companies.

"It is still a really competitive market for talent," Ellerin said.

This story first appeared in our sister publication, Crain's New York Business.