AI is driving European investment in digital health, led by rising interest in diagnostics, clinical decision support and provider software, but market growth in 2023 is once again on par with 2020 levels after a 2021 spurt, Albion VC told a lunchtime presentation this week. 

Funding raised by European health tech start-ups shot up to EUR12.5 billion in 2021 as the increase in the use of technology across the globe during the pandemic prompted a venture capital spree, Albion Partner Christoph Ruedig and Investor Molly Gilmartin told journalists.

The total projected amount invested in European health tech start-ups was EUR6 billion in 2023, similar to the EUR5.9 billion invested in 2020 and closer to historic averages, according to Albion data. 

“This year there’s clearly been a slowdown in companies going out and raising funds,” Ruedig said. “But the ones that are coming to market, actually, are better companies, because the ones that can fundraise in a difficult environment are typically quite solid.” 

Despite what he acknowledged was a perception of “doom and gloom”, Ruedig described the over market as “healthy ecosystem,” in part because the use of technology in healthcare still lags behind its penetration in other sectors. 

“The health industry still is catching up with other industries when it comes to digitalisation so it is a more positive picture than the headline statistics would imply,” he said. 

As the sector has settled at out in the wake of Covid-19, the rapid development of AI has boosted interest in diagnostics, clinical decision support and provider software, while start-ups in the workplace wellness, symptom checking and companion apps have been less robust.

In the digital pharma sector, similarly, tech bio and synthetic bio, of which 86% of the latter are UK-founded companies, have generally outperformed investments in patient recruitment for clinical trials and digital biomarkers over the same period. In the case of digital biomarkers, a number of companies in this area have moved across to the digital care space, Gilmartin said. 

Meanwhile, some of the best-funded at the height of the pandemic – including teleconsultation, digital therapeutics and workplace wellness – have seen a decline in investment. Both teleconsultation and workplace wellness have struggled to expand outside of Europe.  

Imaging companies have had a more consistent performance than other parts of the sector, with 24% raising money in 2023 and companies becoming increasingly specialised and focusing on distribution partnerships in order to expand geographically. 

The European health technology model also remains relatively immature compared to other sectors and geographies, the investors said, with just 13 “unicorns” – companies worth more than $1 billion – compared to 112 in the US health tech sector and 164 in the European fintech sector. 

Nevertheless, Gilmartin pointed out that company creation is still strong, with a 37% increase in the number of digital care companies and a 50% increase in digital pharma companies over the past few years. 

“It’s a question of understanding which of the companies in this market are solving business problems that the customer who is affected by the macroeconomic environment needs,” she added.