• Venture Capital Funding globally grew to USD4.5 billion (302 deals) in 2015, from USD1.1 billion (90 deals) in 2011[1], and continuing to grow in 2016
  • More healthtech funding activities in the Asia Pacific region are expected, particularly in the areas of digital therapeutics, data and analytics, and diagnostics. China, India and Singapore have become hotbeds for healthtech start-ups in the region. Healthcare funding has shifted its focus in the last five years, with 'Healthcare Consumer Engagement,' 'Wearables & Biosensors' and 'Personal Health Tools & Tracking' attracting the most funds in 2015.
  • Consolidation in the healthtech sector continued to pick up pace in 2015, with the year seeing 187 M&A transactions, nearly doubling that of 2014 (95 deals).
  • Strength of management is a key consideration for venture capitalists when assessing start-ups in Asia.

Venture funding globally reached a record of USD4.5 billion in 2015, quadrupling that of 2011, but only up 4 percent from 2014 (USD4.3 billion, 295 deals). Funding is therefore likely to reach a phase of continued maturing in 2016, according to Baker & McKenzie's latest report "Powering the Future of Healthcare in Asia Pacific," which looks at the global trends and the legal environment concerning healthtech funding, as well as the Asia healthtech landscape. A copy of the report is available at Baker & McKenzie's website.

China, India and Singapore as the hotbeds for healthtech start-ups

The last three years have seen a surge in healthtech start-ups in the Asia Pacific region, driven among others by a growing middle class affluence and health awareness, the need for chronic disease management, and the growing demand for senior healthcare products and services. China, India and Singapore have become hotbeds for healthtech start-ups in the region, with most of these start-ups falling under the categories of “Navigating the Healthcare System,” “Patient Engagement” and “Consumer Health and Wellness.”

Although more than 100 accelerators/ incubators were launched across Asia Pacific within the same period, few are healthtech focused although this trend is expected to change in the next 12 months, according to the Report. Corporates and strategics have also begun stepping into the Asia healthtech sector, with insurance companies leading the charge. AIA Accelerator (powered by Nest) ran its first cohort of eight healthtech start-ups in 2015, which attracted 76 applications from 16 countries. Metlife has launched its own internal incubator, Lumen Lab, which has a deliberate healthtech focus.

Wearables on personal health tracking on the rise

The report also suggests that there has been a shift in healthcare funding trends. The top-ranked areas for funding in 2011 were 'Healthcare Consumer Engagement', 'Analytics & Big Data' and 'Digital Dx.' In 2015, however, while 'Healthcare Consumer Engagement' continued to attract the most funding with USD629 million, 'Wearables & Biosensing' and 'Personal Health Tools & Tracking' entered the top three most popular subsectors, attracting USD499 million and USD409 million respectively. Close to 900 investors participated in healthtech deals in 2015, up 25 percent from 2014.

"There has been a notable increase in healthtech funding activities outside of the US, particularly in China and India in the past 18 months, where the need for affordable solutions is more acute. We can expect this trend to continue, particularly in the areas of digital therapeutics, data and analytics, and diagnostics," Julien de Salaberry, the founder and CIO of The Propell Group, said.

Consolidation in the healthtech sector continued to pick up pace in 2015, with the year seeing 187 M&A transactions, nearly doubling that of 2014 (95 deals), including a few headline-grabbing deals such as IBM's USD1 billion acquisition of Merge Healthcare and Emdeon's USD910 million acquisition of Altegra Health.

"We believe this flurry of M&A and funding activities in the healthtech sector will stay strong in 2016, which will give rise to a whole suite of legal issues. We want to develop a report that can serve as a helpful resource for our clients as they look to take advantage of these new opportunities and grow their business," Ben McLaughlin, Head of Baker & McKenzie's Asia Pacific Healthcare Group, said. "Staying ahead of our clients' future needs is one of our Firm's core values. We will continue to identify the critical issues that are impacting our clients' business, and provide them with innovative solutions."

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Access to Funding: Strength of management is the key

Private funding, be it venture capital or angel investment, has become an attractive source of start-up funding, especially for businesses that do not have sufficient collateral for traditional loans. There has been a growing number of angel and venture capital funding options available in Asia in recent years, and millions of dollars have been made available to start-ups through such private funding.

"What venture capitalists typically look for in start-ups is whether the business is able to differentiate itself from other competitors; whether the entrepreneur has a clear roadmap of the product and research cycle and the product is ready for commercialization," said Chen Yih Pong, a Principal in the Corporate and Securities practice at Baker & McKenzie & Wong & Leow, member firm of Baker & McKenzie in Singapore. "Strength of the management team is another important consideration for many venture capitalists when assessing start-ups, particularly in Asia," Mr. Pong continued. "The entrepreneur's track record performance and whether the person has the passion and experience to grow the business are all factors that venture capitalists will take into account."

Alternative Funding Options: Crowdfunding

Crowdfunding is gaining traction and growth globally. Industry research estimated that the global crowdfunding market reached USD34 billion in 2015, and it could grow to USD96 billion by 2025 according to a 2013 World Bank report.[2], [3] In Asia though, crowdfunding is still a relatively new concept and countries are at varying stages of developing or implementing crowdfunding regulations. Donation-based or rewards-based crowdfunding (also referred to as community funding) are generally less regulated in Asia as there are no offers of returns or potential returns to donors. By contrast, equity-based or lending-based crowdfunding, which involves financial returns, are subject to the relevant securities laws, which would result in various restrictions or licensing requirements.

Malaysia became the first ASEAN country to legislate equity crowdfunding (ECF). The regulations cap the amount raised by companies to MYR3 million in any 12-month period, and MYR5 million in total through ECF platforms.[4]

"While Asia seeks to find its equilibrium between giving hand to budding entrepreneurs and safeguarding investors' interests, healthtech companies should engage all avenues available to them, but also keep an eye out that they do not fall foul of both local laws where they are based in, as well as foreign securities laws that foreign investors they may approach could be subject to," Mr. Pong added.

"Powering the Future of Healthcare in Asia Pacific" is a six-part report series produced by Baker & McKenzie, in partnership with The Propell Group. The report, which is being released over a period of six months, considers the impact of technological innovation on healthcare in the region and highlights some of the legal concerns that start-up innovators and pharmaceutical and medical device companies may face in this new paradigm of e-health.

 

[1] Digital Health Funding: 2015 Year in Review, Rock Health

[2] Crowdfunding Industry Overtakes Venture Capital and Angel Investing, Symbid Blog, 8 July 2015

[3] Crowdfunding for Development: Recommendations Vs. Reality, The World Bank Blog, 15 October, 2014

[4] The Equity Crowdfunding Bandwagon: South East Asia Jumps On Board, Crowdinsider.com, 12 January 2016

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