Europe’s biggest opportunity: The ‘Teslarisation’ of healthcare
The sheer size of European Healthcare has positioned it as an industry ripe for innovation and disruption. However, despite representing 10%+ of national GDP, Healthcare has been accused of failing to leverage the tech-enabled tools that have allowed other sectors to dramatically increase productivity. At Heal Capital, we believe we are on the precipice of a state-shift. The single biggest opportunity in Healthcare sits before us – the Teslarisation of Healthcare.
‘Teslarisation’ of an industry: Playing a different game
The paradigm shift we foresee is best exemplified in the automotive industry which was forever transformed by Tesla. Once a luxury electric car manufacturer, the company evolved to become a multi-category platform that terraformed the industry. Today, Tesla has become the largest ‘car company’ on the planet, dwarfing traditional incumbents such as Ford and Volkswagen.
Tesla’s key to success? They fundamentally played a different game. While incumbents believed they were competing against a luxury electric car manufacturer, Tesla consistently began leveraging tech-enabled tools to expand into larger and larger value pools. By the time the incumbents reacted, they were no longer competing against a luxury electric car manufacturer. Instead, they were competing against a behemoth platform that encompassed battery innovation, self-driving AI and countless other multi-billion-dollar verticals. The battle was already lost.
2020 to 2022: An explosion of capital
At Heal Capital, we asked ourselves: “Who will build the Tesla of European Healthcare?”. It appears we were not alone. European HealthTech VC funding exploded from 2020 to late 2021. In fact, H1 2021 saw funding surge to €4.9Bn, over 3X the capital in the same period of 2019. Growth in funding for European companies outpaced the USA and Asia by 3X and 4X respectively as an increasingly large percentage of capital for European companies came from deep-pocketed US funds. In truth, this explosion was not specific to HealthTech or to Europe. Effectively all sectors and geographies saw massive increases in funding, leading to a constant stream of freshly minted new Unicorns.
Things may have gotten a little too ‘hot’. Beginning in the USA but now propagating to Europe, we now see a clear market correction since late Q4 2021. As US public markets began to drop and valuation multiples compress, the IPO window has slammed shut. This has already impacted late-stage HealthTech Company’s median valuation which dropped 50% globally in Q1 2022. The correction is likely to trickle down to earlier-stage companies in coming quarters and undeniably, we are in for a period of market turbulence. Some may ask if the aforementioned growth was entirely driven by market exuberance with little to no fundamental value. At Heal Capital we believe this is not the case.
Looking back to look forward: Two transformative years in healthcare
Despite current conditions, European HealthTech was forever changed over these last two years. Similarly to Automotive, Healthcare is characterized by a number of ‘slow-moving’ incumbents that struggle to digitalize. Leveraging entrenched market positions, these players have historically acted as a bottleneck to HealthTech startups, forcing long-sales cycles and small average contract values. This made the hyper-scalable growth VC’s expect exceedingly challenging to achieve. In effect, the B2B SaaS playbook that has been so successful in other sectors never found footing in European Healthcare.
However, in the period 2020-2022, COVID-19 acted as a super-catalyst for change, showcasing the large-scale value of tech-enabled tools as well as the devastating impact of over-stretched healthcare systems. Talented, often second-time founders recognized the opportunity and began building hyper-ambitious European HealthTech Platform. They capitalized on the explosion in fresh VC funding to arm themselves with large war-chests which, in many cases, remain fully loaded.
Critically, these founders asked the all-important question: “How to tap into the largest value-pools of Healthcare?”. Gradually, they realized they should stop ‘Enabling’ the incumbent ecosystem but instead build true tech-enabled ‘Competitors’. New, vertically integrated models emerged, reimagining Healthcare delivery from the ground up. These companies took on all the operational complexity of end-to-end care delivery, acting as full-stack Healthcare Providers. However, they also captured all the value of technology on business fundamentals, patient outcome and cost efficiency. They successfully expanded from the challenging ‘HealthTech IT' value pool to the exponentially larger ‘HealthTech Delivery’ value pool. These founders are creating a new playbook for large-scale growth within an expanding number of multi-billion-dollar markets. We believe this is the beginning of European Healthcare’s first multi-category platform giants.
The future of healthcare: Large-scale digital platforms
At Heal Capital, we believe the Teslarisation of Healthcare is the single largest opportunity in European Healthcare. Current market conditions cannot put the genie back in the bottle. In fact, given that during a down-turn, ‘Healthcare Delivery’ value-pool are better shielded and that incumbents may find it harder to experiment with tech-enablement themselves, we may even see an acceleration. Remember, Tesla also survived the 2008 crash…
Under the spotlight
Heal Capital is one of Europe’s leading dedicated investment funds for integrated HealthTech with a total investment volume of EUR 100m, backed by the German private health insurers. We back mission-driven founders with capital and HealthTech-specific expertise, accelerating market access to the healthcare system. We reimagine healthcare by leveraging cutting-edge technology to make a difference in people‘s lives.
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