HealthTech VC Funding Quadrupled in Four Years to $4.5 Billion; Crowdfunding on the Rise

Baker & McKenzie

Healthcare delivery is poised for a radical change. The unparalleled ability to collect, mine, and analyse health data; the increasing sophistication of bio-sensors; and the exponential rise in the use of smartphones provide opportunities to reconsider how to efficiently provide healthcare solutions across the Asia-Pacific. Healthcare resources that were constructed to treat disease will need to evolve to take advantage of new technologies that can intervene early to prevent illness.

Countries across the region are grappling with the possibilities of this healthtech revolution. However, they are also caught with the dilemma of using 20th-century healthcare infrastructure for 21st-century healthcare solutions. This dilemma also raises many issues about the use of new technologies in healthcare, which regulators are behind in answering.

Medicine’s digital revolution will not only benefit developed health systems, but will also allow developing economies to leapfrog over expensive development stages. For the Asia-Pacific’s developing economies, following the same evolutionary steps of developed economies is neither feasible nor required. It’s too costly and will take too long. Above all, it fails to take advantage of the technology innovation that is changing the delivery of healthcare.

The provision of modern-day healthcare across Asia-Pacific concerns all stakeholders such as physicians, patients, hospitals, investors, and ministries of health. The region faces a considerable public health challenge which is driving the growth in healthcare spending to exceed GDP growth, which negatively impacts productivity.

In the Asia Pacific, unmet medical needs compounded by an under-invested and immature health system infrastructure plague healthcare. Furthermore, the region’s large population, which mostly pays for its own healthcare, is increasing its demands for greater choice and access to health services.

In this era of radical technological change and innovation, the legal and regulatory landscape is undergoing gradual transformation and harmonisation. The ASEAN Medical Device Directive is an example of this. However, the healthcare industry still faces the issue of “law lag,” as laws are a number of steps behind technological advances.

Common themes are emerging across the Asia-Pacific in legal developments, with a focus on data protection laws; the regulation and promotion of medical devices; and the ability to protect, enforce and commercialise intellectual property. Governments and legislatures are charged with the challenging task of balancing the need for effective regulatory compliance with the need to accelerate innovation, foster development, and reduce overall healthcare costs.

China, India, and Singapore as the hotbeds for healthtech startups

Healthcare startups in the Asia-Pacific region have surged in the past three years driven by a growing middle class affluence and health awareness, the need for chronic disease management, and the growing demand for senior healthcare products and services. China, India, and Singapore have become hotbeds for healthtech startups.

Although more than 100 accelerators/incubators were launched across Asia-Pacific within the same period, few are healthtech focused. Corporates and strategics have also begun stepping into the Asia healthtech sector, with insurance companies leading the charge. AIA Accelerator (powered by Nest) ran its first cohort of eight healthtech startups in 2015, which attracted 76 applications from 16 countries. Metlife has launched its own internal incubator, Lumen Lab, which has a deliberate healthtech focus.

Wearables on personal health tracking on the rise

There has also been a shift in healthcare funding trends. The top-ranked areas for funding in 2011 were “Healthcare Consumer Engagement,“”Analytics & Big Data,” and “Digital Dx.” In 2015, however, while “Healthcare Consumer Engagement” continued to attract the most funding with USD629 million, “Wearables & Biosensing” and “Personal Health Tools & Tracking” entered the top three most popular subsectors, attracting USD499 million and USD409 million respectively. Close to 900 investors participated in healthtech deals in 2015, up 25 percent from 2014.

“There has been a notable increase in healthtech funding activities outside of the US, particularly in China and India in the past 18 months, where the need for affordable solutions is more acute. We can expect this trend to continue, particularly in the areas of digital therapeutics, data and analytics, and diagnostics,” Julien de Salaberry, the founder and CIO of The Propell Group, said.

Consolidation in the healthtech sector continued to pick up pace in 2015. Over the year, 187 M&A transactions occurred, nearly doubling that of 2014 (95 deals). These M&A attractions included a few headline-grabbing deals such as IBM’s USD1 billion acquisition of Merge Healthcare and Emdeon’s USD910 million acquisition of Altegra Health.

“We believe this flurry of M&A and funding activities in the healthtech sector will stay strong in 2016, which will give rise to a whole suite of legal issues. We want to develop a report that can serve as a helpful resource for our clients as they look to take advantage of these new opportunities and grow their business,” Ben McLaughlin, Head of Baker & McKenzie’s Asia Pacific Healthcare Group, said. “Staying ahead of our clients’ future needs is one of our Firm’s core values. We will continue to identify the critical issues that are impacting our clients’ business, and provide them with innovative solutions.”

Access to Funding: Strength of management is the key

Private funding, be it venture capital or angel investment, has become an attractive source of start-up funding. Businesses that do not have sufficient collateral for traditional loans are especially attracted to private funding. In recent years, the number of angel and venture capital funding options available in Asia has been growing; private funding has made millions of dollars available to start-ups .

“What venture capitalists typically look for in start-ups is whether the business is able to differentiate itself from other competitors; whether the entrepreneur has a clear roadmap of the product and research cycle and the product is ready for commercialization,” said Chen Yih Pong, a Principal in the Corporate and Securities practice at Baker & McKenzie & Wong & Leow, member firm of Baker & McKenzie in Singapore. “Strength of the management team is another important consideration for many venture capitalists when assessing start-ups, particularly in Asia,” Mr. Pong continued. “The entrepreneur’s track record performance and whether the person has the passion and experience to grow the business are all factors that venture capitalists will take into account.”

Alternative Funding Options: Crowdfunding

Crowdfunding is gaining traction globally. Industry research estimated that the global crowdfunding market reached USD34 billion in 2015, and it could grow to USD96 billion by 2025 according to a 2013 World Bank report. In Asia, though, crowdfunding is still a new concept and countries are at varying stages of developing or implementing crowdfunding regulations. Donation-based or rewards-based crowdfunding (also referred to as community funding) are generally less regulated in Asia as there are no offers of returns or potential returns to donors. By contrast, equity-based or lending-based crowdfunding, which involves financial returns, are subject to the relevant securities laws, which would result in various restrictions or licensing requirements.

Malaysia became the first ASEAN country to legislate equity crowdfunding (ECF). The regulations cap the amount raised by companies to MYR3 million in any 12-month period, and MYR5 million in total through ECF platforms. Thailand has also implemented equity crowdfunding regulations, which allow companies to raise up to THB20 million per year, or up to THB40 million in total. Singapore has released a consultation paper on securities crowdfunding, while Indonesia has announced plans to come up with new laws to regulate crowdfunding.

“While Asia seeks to find its equilibrium between giving hand to budding entrepreneurs and safeguarding investors’ interests, healthtech companies should engage all avenues available to them, but also keep an eye out that they do not fall foul of both local laws where they are based in, as well as foreign securities laws that foreign investors they may approach could be subject to,” Mr. Pong added.

About the Author/Report

This article comes from “Powering the Future of Healthcare in Asia Pacific,” a six-part report series produced by Baker & McKenzie, in partnership with The Propell Group. The report, which is being released over a period of six months, considers the impact of technological innovation on healthcare in the region and highlights some of the legal concerns that start-up innovators and pharmaceutical and medical device companies may face in this new paradigm of e-health.