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India’s healthtech startups raised a funding of $436 million in the last quarter of 2019. This year, they raised only $72 million in the first quarter, and $103 million in the second, shows data by Tracxn. (Photo: Bloomberg)
India’s healthtech startups raised a funding of $436 million in the last quarter of 2019. This year, they raised only $72 million in the first quarter, and $103 million in the second, shows data by Tracxn. (Photo: Bloomberg)

Post-covid healthtech funding rebound is leaving India behind

CB Insights data projects that the region will pull in $4.8 billion in healthcare VC funding this quarter, which would beat the earlier record set in Q3 2018

The second quarter of 2020 is set to be the best ever for healthtech funding in Asia. CB Insights data projects that the region will pull in $4.8 billion in healthcare VC funding this quarter, which would beat the earlier record set in Q3 2018.

Most of the funding has been going to Chinese companies, which have scored a number of mega rounds. The biggest one was a $1 billion round for Shenzhen-based DNA sequencing equipment maker MGI Tech, which has become a major provider of covid-19 test equipment.

Data shows that China is leading a rebound in healthtech funding globally. All stakeholders are more open now to telehealth and other innovations to meet the needs of healthcare in the post-covid world. Projections based on current run rate suggest 2020 will beat last year’s funding by a wide margin, despite a slowdown in activity in the first quarter.

The picture in India is a stark contrast to the exuberance in China. Despite all the noise over the post-covid uptick in digital healthcare, it’s yet to be reflected in VC funding for healthtech startups. Funding for the sector went up to $940 million last year, a significant rise from the $586 million in 2018, according to venture capital data tracker Tracxn. The last quarter of 2019 was the best with $436 million being raised.

But this has fallen sharply this year. Tracxn data shows only $72 million was raised in the first quarter. This improved in the second quarter, but not by much—$103 million was raised as of 22 June.

Slippery slope

There’s no dearth of tech talent and healthcare innovators in India. AI-based diagnostics, for instance, spawned a number of promising startups, but they have struggled with growth and scaling, exacerbated by covid-19.

Take the case of SigTuple, one of the top-funded healthtech AI startups in the country, having raised $45 million so far. It recently announced that two of the three co-founders were leaving the company which had also laid off hundreds of employees and shut most of its centres. “Raising growth capital, which we had planned earlier to continue with the momentum, was not possible in the near to medium term," said the remaining co-founder, Tathagato Rai Dastidar, who has taken over as CEO, in a LinkedIn post.

SigTuple started out with automating pathology tests with AI. This involved a hardware component because blood smear slides had to be digitized. So it improvised a contraption to use a smartphone with a microscope. But deployment of its device in hospitals and labs was a big hurdle. Last year, it rolled out its own chain of diagnostic labs, believing it would also accelerate access to patient data which is vital for building an AI product. But it appears to have bitten off more than it could chew.

Uphill climb

While the SigTuple experience shows what could go wrong in the growth rush, a number of other Indian healthtech AI startups have raised funding and even gained momentum in the pandemic year.

Niramai, which uses thermal imaging and AI to detect early stage breast cancer, raised a $6 million round in February from Japanese investors and recently launched a home screening service. Qure, which interprets radiology scans with AI, had a $16 million round led by Sequoia India in February. In March, AI-based ECG diagnostics startup Tricog raised $10.5 million in series B funding led by Japanese investors.

Tricog, which also has a hardware component to transmit ECG data to the cloud for interpretation, faced challenges in building the business that are typical for this domain. The ideal playbook for a deep tech startup is to validate the solution in India, and then scale it internationally.

“Whether it’s GreyOrange doing warehouse automation with $10 million ticket sizes or it’s Tricog selling machines costing a few hundred dollars, you need strong distribution partners in each of the countries you enter, fronted by your own representatives," says Karthik Reddy, managing partner at Blume, an early stage investor in both GreyOrange and Tricog.

The startup’s partnership with GE, whose ECG machines it adapts for cloud-based diagnosis, helped it to gain traction abroad. But a B2B business model takes time to scale. “Though we are a cloud-based service, we still need to onboard and sell to doctors, which is an offline process. And doctors are not very forthcoming in trying out new technologies," says Charit Bhograj, cardiologist and co-founder of Tricog.

What it boils down to is a need for patient capital that will take into account the longer incubation period for healthtech. While the likes of Tricog, Qure and Niramai have got backing and show promise, the huge post-covid push to AI and healthtech in China has left Indian startups way behind in the fundraising stakes.

Sumit Chakraberty is a consulting editor with Mint. Write to him at chakraberty@gmail.com

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