The pandemic launched the healthcare sector into a digital transformation, and the demand for innovative new tools has opened the door for health-based startups to spring up. Although 2022 startup funding is down from last year, healthcare venture capital (VC) activity is steady.

Recently, the VC arm of Google’s parent company, Alphabet, announced a big move into healthcare: investing in dozens of startups.

The healthcare sector’s ongoing challenges, such as the labor shortage and lack of care accessibility, have created a unique landscape of opportunity for startups.

Tackling the Sector’s Biggest Obstacles

Workforce shortages continue to plague the healthcare sector – and are forecasted to continue. By 2025, the U.S. is estimated to have a shortage of approximately 446,000 home health aides, 95,000 nursing assistants, 98,700 medical and lab technologists and technicians, and more than 29,000 nurse practitioners.

Healthcare startups are innovating solutions to help fill these gaps and combat future talent shortages. Motivo Health obtained $14 million in series A funding to meet the rising demand for mental health professionals, and Incredible Health is a tech-enabled career marketplace for healthcare jobs that grew its 2021 revenue by five-fold and has expanded its workforce.

Healthcare accessibility is another area some startups are focused on solving – especially access to healthcare in rural areas. Forbes reported rural communities have a 23% higher mortality rate than people in urban areas in part because they simply lack access to healthcare. Startups like Homeward were created to expand access to care in these areas.

Challenges for Healthcare Startups

Startups in any vertical face challenges – like funding, however the healthcare sector also has its own distinct challenges for a new business model looking to establish itself.

Industry-wide, funding has taken a hit. Bloomberg reported Q2 startup funding was down 25% from the previous quarter and marked its lowest funding amount since 2020. Since March 2022, the unicorn club has only grown in size by 9.8%, which is down from the 13.9% increase seen between December 2021 and March 2022.

Another challenge facing healthcare startups is one felt by companies across the country: finding and retaining top talent. In order for startups to innovate and scale quickly, it’s crucial they have some of the industry’s leading experts – no easy feat in the current job market.

For healthcare tech startups specifically, data security often stands as a barrier. Today, most doctors and medical providers enter patient data using software to store electronic health records (EHR). A recent survey showed 89.9% of physicians report using an EHR system.

Keeping these confidential patient files protected, however, has not gotten easier. The average total cost of a breach in healthcare has increased 9.4% in 2022.

Health System Partnerships and Integrations

More and more, large companies and healthcare systems are recognizing the advantage of integrating or partnering with an innovative startup specializing medical solutions.

In 2021, Kaiser Permanente “forged a relationship with tech startup Unite Us to build a new care network to better address social determinants for its millions of members”.

Just weeks ago, Amazon announced a partnership with teletherapy startup Ginger to deliver behavioral health services to its workforce as part of its larger healthcare initiative. And last year, several health systems including Tenet Health and Providence, joined together to launch a new startup to pool.

Despite facing obstacles, healthcare startups are crucial to supporting the sector’s shifting delivery models and advancing innovative care solutions. And as brokers at Colliers, we are working to help our clients navigate this ever-changing landscape.