• Sunday, May 19, 2024
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Health tech startups beat local lending hurdles with overseas funding

Telemedicine

Healthcare startups are looking abroad to secure funding for their services as local sources thin.

Healthtech and fintech venture capital firm, HealthCap Africa, secured nearly $100 million in additional investment as it expands its portfolio across Africa.

The firm is dodging tough lending terms in Nigeria and most of Africa by pitching solutions that are bankable and practical to global lenders offering enabling terms.

Its mainstay is funding tech-enabled solutions in healthcare, from telemedicine to diagnostics, clinical trials and research, retail pharmacy, biotechnology, drug manufacturing, and radiology among others.

It has attracted funding from about 110 investors to 11 healthcare startups and five fintech startups with a combined value of $750 million under its portfolio.

A significant number of them are led by women health entrepreneurs: LifeBank, Healthtracka, Infiuss Health, Reel Fruit, and Emergency Response Africa.

Melissa Bime, founder, Infiuss Health, for instance, started connecting researchers, pharmaceutical and life science companies to patients in US and Europe for clinical research and trials in 2017.

Her startup aims to enrich the quota of African population included in global research studies and clinical trials.

HealthCap saw the potential of the critical service Infiuss was providing and gave it a backing that many entrepreneurs struggle to get due to stringent demands attached to securing loans locally.

The Central Bank of Nigeria has raised interest rates aggressively this year in a bid to curtail rising inflation, pushing the benchmark rate by a combined 600 basis points to a record 24.75 percent in March, stifling business lending.

This unease led Ola Brown, founder of HealthCap, to set up the venture capital firm earlier in 2017.

She explored alternative financing solutions and established an inclusive funding ecosystem purpose-built for the needs of entrepreneurs and startups in Africa.

“Despite achieving significant success, including multi-million dollar revenues, a robust client base comprising prominent global corporations, and a proven track record of delivering services across 30 African countries, I encountered formidable obstacles in accessing funding,” Brown said.

“My bank required a substantial “cash collateral” equivalent to 200 percent of the loan amount, which led me to question the viability of growth for companies on the continent under such stringent lending terms.”

Overall, African healthtech innovators are finding success in attracting investment elsewhere. They raised $167 million in 2023, a substantial amount despite being a two percent decline from the previous year, according to a 2024 report on funding activities by Salient Advisory.

Investments in the healthcare sector increased by 17 percent to outpace the broader African tech ecosystem, which saw a 39 percent funding decline.

Investors’ biggest bets were on online pharmacy solutions, which captured 38 percent of all funding in 2023, mainly driven by Series B rounds to Kasha, Mydawa, and Yodawy.

Five startups including Helium Health, one of HealthCap’s portfolios, Kasha, MYDAWA, Yodawy, and Remedial Health captured 59 percent of all funding.

The report noted that funding remains concentrated in Nigeria, Kenya, and Egypt, with significant year-on-year swings in Egypt (+137%) and Ghana (-99%).

Equity investments accounted for 91 percent of funding in 2023 as $4.8 million was invested across 27 deals at pre-seed stages. In addition, $32 million was invested at seed stage across 23 deals while $99 million was invested at Series A or higher stages across seven deals.

Grants accounted for less than 10 percent of funding invested, and only one debt-based investment was recorded.

The year 2023 also saw over 2,000 percent increase in funding for women-led startups, from $2 million in 2022 to $52 million.

These deals were driven by Kasha, Dawi Clinics, Chefaa, and Maisha Meds.

Kasha’s $21 million Series B funding was the largest investment ever made in a woman-led African healthtech company.

Amaan Khalfan, director, Amseena Consulting and ex-CEO of Goodlife Pharmacy said the funding momentum shows there are strong management teams that can take investments to the next level, speaking at a workshop on investment in Africa.

With shifting consumer behaviour, people are becoming more proactive and knowledgeable about their health, with a growing focus on preventing chronic diseases (NCDs) and overall wellness.

This creates market opportunity for businesses that empower people to manage their own health and in turn make them attractive for investors because of the vast potential customer base.

Khalfan said that unexplored opportunities lie in the market outside urban areas, saying “Any business that can get that type of scale and use it as foundation and still makes it profitable, with the right type of funding, is going to be the way for the future.”

According to Salient Advisory, future funding appears available as investors with an interest in the health sector raised over $600 million in new funds in 2023.

The extent to which these funds will be invested in tech-driven innovators is to be determined, it noted.

The advisory also added that public organisations can also identify companies capturing commercial success, and find opportunities to amplify their public health impact.

“Public sector actors can use investor activity as an indicator of innovations that are on a strong growth trajectory and may be positioned to support public health systems at scale,” it stated in the report.