Reinvigorating medtech innovation

How can early-stage companies attract more investors?

In the Future of Health™—where early detection, empowered consumers, and a focus on wellness result in less need for acute care—innovation in medtech will require a greater focus on prevention, wellness, diagnosis, and detection.

But while overall venture financing in medtech increased 67% since 2017, medtech investors are still shying away from unproven early-stage technologies, focusing instead on late-stage diagnostic and digital companies.

Investment in a healthy medtech innovation ecosystem is critical not only for bringing new products to market for patients but also for sustaining incumbent medtech company pipelines. Explore four key features of funding trends:

• A focus on scalable technologies that address unmet needs in large markets
  
• Products that have the potential to reduce the overall cost of health care

• Preference for efficient, forward-looking companies

• Continued exploration of alternative financing options

Can medtech startups show us where the industry is headed?

To play a larger role in the health system of the future, medtech companies will likely need to expand both their scope and their capabilities. One route may be through partnerships with consumer health organizations. Another could be through new business models that could include managing the entire patient journey around a disease or becoming an ecosystem data and analytics provider. Startup partnerships and acquisitions might offer another important pathway for strategics to explore new models and remain relevant.

Startups that want to be acquired by strategics need to understand the opportunities and the challenges facing the industry. These companies should ensure that their strategies and products are well positioned for these trends. While there are growing opportunities outside of traditional care settings and along the patient journey, reimbursement could be challenging. A keen understanding of reimbursement, site of care shifts, and alignment with existing product lines will increase the likelihood of acquisition or other financial support.

Learn more about some of the biggest trends in the industry:

• Startups and strategics are expanding beyond episodic care and procedures

• Care is shifting away from the traditional inpatient settings

• Medical technology is getting smarter

• Startups are choosing less burdensome regulatory paths

• Pre-seed rounds have been commonplace, with significant step-ups in average round sizes and limited runway

• Series A investors are looking beyond proof of concept
  

Is the medtech innovation ecosystem at risk?

New medical technologies hold the promise of driving insight for better patient outcomes, no matter the site of care. But we’ve been tracking a worrying trend: Investment and startup activity in medtech has been declining, putting future innovation at risk. So what strategies can help medtech companies turn the tide?

To reinvigorate medtech innovation, industry stakeholders should consider taking several steps.

Large companies:

• Set aside capital to invest in early innovation

• Consider alternative deal structures or partnerships

• Put the right governance model in place and align incentives
  
• Consider partnerships with nontraditional players

• Mentor early-stage companies on how to develop a compelling value proposition
  

Small companies/entrepreneurs:

• Take advantage of nontraditional funding options

• Consider consumer technology companies as potential investors or partners

• Spend additional time understanding potential customers and how they define value early in the product life cycle

• Enter into partnerships with employers and payers to test value propositions or co-develop products
  

Venture capital investors:

• Co-invest with large companies in early innovation

• Set a funding hurdle for products or business models that can demonstrate value, generate coverage, and be commercially differentiated

• Consider partnering with family offices and other investors to evaluate medtech investment opportunities

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