Will global uncertainty affect investment in biotech?

This article was submitted to TechCabal by Sam Sturm, Chief Venture Architect, Founders Factory Africa

At the height of the COVID-19 pandemic, the world was primed for a substantial increase in health and biotech spending and investment. Governments and the private sector alike promised to dedicate funding so that they would be adequately prepared for the next pandemic if or when it came.

Over the course of 2020 and 2021, those promises appeared to be materializing. Globally, healthtech companies raised US$57.2 billion in 2021, a 79% increase from the US$32 billion raised in 2020, which itself was significantly higher than the approximately US$20 billion raised in 2019. African health and biotech startups, meanwhile, benefitted to the tune of US$392 million, an 81% increase from the investment received in 2020.

In 2022, however, the global investing landscape has changed dramatically. Spooked by geopolitical uncertainty, a bear market, and rising interest rates amid record-high inflation, investors have retreated to traditionally safer waters, with global venture capital funding hitting its lowest point in two years. Health and biotech startups have not been spared the effects of this slowdown either.   

Amid this investment slowdown, what is the likely impact on the African health and biotech startup ecosystem?  

Investment remains strong, as does long-term potential  

Those paying attention to the African VC and investment space would have cause to believe that the continent will walk away unscathed. After all, African startups raised a record $3.5 billion in the first half of 2022, a 131% increase on the same period in 2021. 

Simultaneously, the continent has enjoyed a sustained recovery in economic growth post the pandemic, with Sub-Saharan Africa expected to grow 3.7% in the second half of 2022.

In isolation, this level of growth is remarkable. Yet, given the recessionary headwinds blowing through the global economy, especially those classed as “developed” economies, Sub-Saharan Africa is a beacon of exciting possibilities. 

It’s also worth bearing in mind that, according to the African Venture Capital Association, 16 Africa-focused VCl funds announced a final or interim close in the first half of 2022, with a cumulative fundraise of close to half a billion US dollars ($495 million). That funding will play a vital role in supporting the growth of the  African startup ecosystem, health and biotech startups included. 

Given that the African healthcare market is expected to be worth $259bn by 2030, that’s an opportunity that cannot be ignored. 

If the economic headwinds of 2021 and 2022 do eventually impact Africa’s VC ecosystem, it should not detract from the continent’s long-term potential. That’s especially true for the health and biotech vertical, which accounted for just 8% of the $4.9bn raised by African tech startups in 2021. 

There is still room for growth

The room for growth is exponential. Healthcare is a universal concern. In a region that’s home to nearly 1.2 billion people across 46 countries, there are numerous challenges that innovative startups are uniquely positioned to address. Our own portfolio of healthtech startups has given us a first-hand taste of the depth of innovation in the sector. 

Regardless of current global economic conditions, a long-term approach that focuses on that potential can  lead to the emergence of sector-defining ventures that create real change for their users on the ground. Even if there is a pullback in VC funding in the short-term, committed investors, including our healthtech investment partners, understand that real growth and change will be achieved over the long haul. They will be able to maximize the value their investments produce and help startups focus on building their businesses. 

African health and biotech startups may find it harder to raise funding and investment in the next few years, yet these negative conditions are not permanent. They do not diminish the sector’s potential on the continent, with the winners likely to be those that back ventures that solve real problems for real people on the ground over the long term.