GALEN GROWTH ASIA Q2 2019 – HEALTHTECH INVESTMENT LANDSCAPE
Healthcare and technology are converging in unprecedented ways across the Asia Pacific region. Having monitored this digital health ecosystem for the better part of the last decade, Galen Growth Asia has a unique reference point for investors, corporates and startups that are increasingly active in this market. In our recent market analysis, we are excited to share that momentum continues strongly in first half of 2019, which saw US$2.5B invested across the region, building on the back of the record setting 2018 total of US$6.3B.
1H 2019 Analysis
As hope to half of the world’s population, it was only a matter of time before the venture capital industry would look to the region for digital health exposure. As we expected, Q1 2019 started strong, ahead of even the US, which has traditionally been the largest market for digital health financing by a wide margin. At the half year mark, while the number of deals (140) was down 38% year on year, the cumulative amount of capital deployed held strong and at par year-on-year compared to 2018, which was a record year, even in the presence of geopolitical instability globally. This reflects a maturing trend in this region, which is that larger but fewer startups are attracting a greater than proportionate amount of capital in the Series B and C stage.
China slows, India regains speed and SE Asia doubles
In the first half of 2019, China represented 76% of total Asia Pac HealthTech funding by $ value, closing at US$1.92B. However, this was down from being 85% of the region’s total last year and down 49% versus in H1 2018. This rapid deceleration could be due to US China geo-political headwinds, which have impacted the China IPO scene in late 2018.
In contrast, India’s HealthTech ecosystem funding, which experienced a significant dip in both value and volume in Q1 2019, accelerated back to reach US$383M, more than 60% of last year’s total suggesting it will surpass it and become its biggest year historically.
Our view is that SE Asia is the real winner of the trade war. This group of countries witnessed US$189M of funding deployed to digital health ventures which doubled the invested total in H1 2018.
Early stage ventures deal count share and average deal size shrink
The volume of deals, up to and including Pre-A stage, as a share of total Asia Pac decreased to 25%, whereas total Series B and C deal value continued to take share, accounting for 69% of total funding. Will these Growth stage investors struggle to find suitable deal flow with the expanding population of Early and Series A stage ventures not able to access sufficient funds or will investors adapt their mandates?
The other end of the pipeline saw the region continue to build bulk with seven mega-deals or rounds in excess of US$100M, an uptick on H1 2018, accounting for 32% of total funding in H1 2019.
Reshuffling at the top for most attractive digital health categories
In the Galen Growth Asia database, we track 45 distinct digital health sub-categories. Within these, Medical Diagnostics and Online Marketplace both remained amongst the most attractive categories, whilst Population Health Management tumbled out of the top 5 to be replaced by Health Management Solutions. Wellness continues its ascent and, new to the top 5 grid, Payments & Administration, potentially benefitting from the spotlight created by JP Morgan’s acquisition of InstaMed in the US.
Coping with the US-China trade war
Despite the flurry of headlines both in the USA and China, HealthTech investors, startups and corporations are, for the majority reporting not to be impacted. In fact, a key driver of growth continued to be a growing number of strategics, both incumbents and new entrants, striking commercial partnerships with the region’s most promising ventures.
Frothy or not
With the heightened level of financing activity and the currently nascent exit market, we regularly scrutinise digital health deals in the region to check on whether venture creation is tracking with investment and exit trends. Our mid-year assessment of H1 2019 deal activity concluded that the ecosystem is not experiencing frothiness. However, we have flagged a relatively small number of deals (such as Halodoc (SEA), Cure.Fit (India) and ZY Health (China)) are capturing a disproportionate share of VC dollars and potentially skewing up average valuations.
Over 90% of investors and enterprise business leaders recently surveyed by Galen Growth Asia confirmed that digital health continues to be a high priority.
Industry and investor sentiment for HealthTech in Asia Pac continues to be very favourable
Over 90% of investors and enterprise business leaders recently surveyed by Galen Growth Asia confirmed that digital health continues to be a high priority. Investors and corporates also confirmed that they are more bullish about the sector in 2019 than they were in 2018. However, investors did express concern about future deal flow access which we believe will eventually see them move up the maturity pipeline.
Previously reported headwinds have not yet impacted momentum
Galen Growth Asia expects the Asia Pac HealthTech ecosystem to continue on its trajectory in 2019. The geopolitical uncertainty witnessed in H2 2018 has certainly evolved. India’s general election has completed, and investor confidence has returned as evidenced by the ~45% jump in all sector venture funding in that country. With China remaining dominant in the region, the total deal value and count downward trend is of concern.
For further information
All the detail, insights and opinion on this exciting ecosystem can be downloaded from the Galen Growth Asia (GGA) website.
Galen Growth Asia is the leading research, analytics and advisory firm in Asia Pac serving Fortune 500 companies and global investors, exclusively HealthTech focused.