Looking forward: Healthtech in 2023

W Health

2nd March 2023

The healthtech ecosystem in India has flourished since the onset of the pandemic, and several scaled healthcare startups have emerged. Gearing for 2023, here are some trends that will shape digital health in India in 2023.

More cautionary funding will force consolidation

Looking forward: Healthtech in 2023

The healthtech ecosystem in India has flourished since the onset of the pandemic, and several scaled healthcare start-ups have emerged. Gearing for 2023, we mined through thousands of healthtech founder conversations and business models to opine about trends that will shape digital health in India in 2023.

#1 More cautionary funding will force consolidation

No surprises here. In 2022, we saw “growth at all costs” give way to strong unit economics and judicious bottom lines. This trend of cautionary investments will only strengthen in 2023 with FOMO investing vanishing. Resultantly, founders will realize the importance of PMeF (Product Market Economic Fit) as a PMF is easier to achieve at all costs but exponentially more challenging to achieve rationally. Startups unable to find a balance between top-line and EBITDA will find it tremendously difficult to raise capital and will look towards acquisition or might shut shop. And yes, this trend is not unique to healthcare.

#2 Genesis of a new breed of talent that will further healthtech innovation

2022 was a year of massive layoffs: more than 18,000 employees were let go from startups. Of these, at least 2,000 were from healthtech companies: Pharmeasy, MFine, and HealthifyMe, which have together raised $1.3 B. This could be a blessing in disguise. Some of these individuals with their tech, start-up, and healthcare DNA can continue to innovate in the space – either as founders or early employees in new start-ups. They have witnessed value creation from close quarters and aspire to replicate the same sitting in the driver’s seat now.

We hope these folks bring fresh perspectives and innovation to unexplored therapies such as pain management, oncology, respiratory care, etc. We sincerely look forward to founders building companies beyond healthcare services aggregation, teleconsultation, marketplaces, employer wellness solutions, wellness products — models that were the most funded in the last two years. 2023’s Bharat is very different from 2015’s India when healthtech was just getting started and these business models were still novel.

#3 Omnichannel is the ONLY way to go

Traditionally, healthcare was largely delivered in person, at a hospital, clinic, or home. Only in the last few years have digital health companies made virtual care possible. After seeing the journeys of several portfolio companies and incubations at W Health, we believe that having a strong omnichannel presence will not only be pertinent for the growth but also the survival of digital health companies.

Start-ups offering healthcare packages and services have already begun realizing the importance of physical touch points and are thus partnering with legacy healthcare providers and opening offline centers. For instance, Pristyn Care has 100+ self-branded clinics. Onco has its own infusion centers. Within our portfolio, Elevate Now is building India’s first omnichannel obesity clinic chain. These are therapies where digital-only approaches do not comprehensively address patient pain points. In 2023, more digital-first platforms will move offline.

D2C brands have adopted a similar trajectory and have moved offline through self-branded shops, kiosks in multi-brand stores, or placements in pharmacies. For instance, 35% of MamaEarth’s revenue comes from its 35 self-branded stores and through 100K+ retail outlets selling its products.

Healthcare is unequivocally trust-driven with offline channels accounting for a majority of healthcare touchpoints and spending. New-age models, especially those targeting specialized care with high ticket prices, will need to build on the existing offline channels to achieve credibility and scale. On the books, an offline shift will help start-ups reduce performance marketing spend and achieve positive operating profit, a feat many investors are looking for, albeit increasing their employee, and brand marketing expenses.

#4 Vertically integrated care models will proliferate in multiple therapy areas

There are 150+ companies in various segments of women’s health like fertility, PCOS, and menstruation, 57 in diabetes, and 22 in mental health. In the last two years, there have been several start-ups building end-to-end platforms with services, and products focused on a single therapy area. The second wave of healthtech innovation in India will largely be introducing newer vertically integrated care models (or single-specialty services companies) either online or omnichannel, that will solve underserved or underorganized clinical sectors. The rise of such care platforms can be directly attributed to demand for patient-centric solutions, continuity of care, and providers who understand patients’ longitudinal health history. On the provider side, these platforms will improve clinical outcomes and capture the entire patient spend.

Founders obsessed with patient delight and outcomes will have the ‘right to win’ in this wave of innovation, and new age ventures will work more closely with existing traditional channels of healthcare delivery (hospitals, doctors, etc.). We believe in 2023 we will see innovation across unexplored therapy areas like pain management, weight loss, oncology, respiratory health, etc. Each of these segments individually has a large TAM and comprises patients with high LTVs.

#5 Patient experience will define the moat

To navigate the restrained funding climate and high customer acquisition costs, start-ups are more than ever aiming for unparalleled customer delight to avoid losing customers and increase retention. This trend will continue in 2023 with service and delivery time being a key lever. Already, diagnostic start-ups are providing same-day sample collection while health and wellness brands are aiming for same or next-day delivery. To do this, diagnostic players are building their own phlebotomist networks or partnering with players like Samplify, Phlebo India, etc., while D2C brands are integrating with logistics partners (Delhivery, Pickrr), partnering with quick commerce players (Zepto, Swiggy), setting up multiple warehouses, and optimizing warehouse management (Unicommerce, WareIQ).

Flawless and empathetic patient experience will not only help build retention, but also bring credibility and trust – both being key to any healthcare business.

#6 Tech built in India for the world

Investment in technology by healthcare has historically lagged industries like retail or financial services but that continues to change rapidly in the US and the world over. Providers and health systems in the US leverage technology solutions to address business problems such as driving workforce efficiency, improving clinical care, and enhancing data security and patient privacy. This increase in spend across the healthcare provider landscape will continue to increase in the coming decade, opening exciting opportunities for healthcare technology services and product start-ups building for the US and rest of the world.

A lesser-known fact is that there is a sizable C-level talent pool in India that has either worked with leading healthcare companies overseas or with India-based development centers of marquee providers including Optum, Athena, Cerner, and pharma companies including Novartis, and Eli Lilly. Moreover, India houses over 100,000 engineers who have built products and solutions for the US healthcare industry. This pool has a detailed understanding of the complex US healthcare system and its myriad pain points and is now building companies for the US from India.

Due to the complicated clinician credentialing process and regulatory barriers, we expect models that are non-patient facing to find success, such as Innovaccer or Indegene. Clinical AI solutions such as Wysa (conversational AI for mental health) and Qure.AI (AI for radiology) are also gaining traction in the US and other global markets. Healthcare-focused IT services companies including CitiusTech and Emids have gained scale within the provider, pharmaceutical, and payor landscape.

#7 Tech giants will continue to flock to healthcare

In the last two years, MAMAA players (Meta, Alphabet, Microsoft, Amazon, and Apple) have announced several healthcare interventions. Meta-owned WhatsApp has an incubator program for digital health startups while Microsoft recently partnered with AIIMS Jodhpur to aid digital health innovation. Alphabet’s Google Health is working on detecting heartbeats and murmurs and measuring heart and respiratory rates through smartphones. Via YouTube, it is enhancing verified health-related content. It has also partnered with Apollo Hospitals to study how deep learning models can be integrated into diagnosis workflows, and with Aravind Eye Care System and Sankara Nethralaya to leverage AI-ML to improve diabetic retinopathy diagnosis. This has bolstered the confidence of every stakeholder in the ecosystem and also holds a plethora of benefits for startups.

#8 Finally, the good news is if you have a solid business model, are a seed stage company, or have runway till H2 2023, there will be no funding winter for you

There is $ 16 B of dry powder available for deployment with ~2,500 investors in India. Despite higher caution, ventures with strong unit economics and innovative business models will not find it difficult to raise capital. Seed stage funding was immune to the bear markets of 2022 and will remain so in 2023. The amount of seed funding increased by 86% and the number of deals increased by 7% in 2022 from 2021.

Most late-stage startups had built an 18-24 month cash runway to combat the funding winter but might need external financing by H2 2023. We anticipate signs of recovery for financing at Series B and beyond in the second half of the year.

Authors: Pankaj Jethwani, Namit Chugh, Vedika Tibrewala