The Fund of Funds for startups was rolled out with a vision to transform India’s entrepreneurial ecosystem and position India as a global innovation hub. The budgetary announcement of Rs 10,000 crore as part of the FoF for startup has generated a buzz amongst industry insiders who have questioned if this allocation would suffice to quell the storm and the funding turmoil that the sector is facing.
Mumbai-based Kenko Health, a health tech insurance startup wound up operations on account of running dry on funds with the withdrawal of key investors. Nintee, an AI-enabled digital health platform and ConnectedH, an online diagnostic centre finder have joined the bandwagon of health tech startups that met the grave! Pharmeasy, a very prominent player in the health tech space, slashed its valuation by 90 per cent due to funding constraints.
The long funding winter refuses to cease, leaving several startups seeing their end amidst diminishing funding rounds, fewer deals and a minimal funding pipeline.
Struggling Startup’s
The health tech startup sector once hailed as the saviour of the masses, has today fallen like a stack of dominoes. Despite being a promising sector the healthtech startup ecosystem has been witnessing many shutdowns and closures largely due to a cash crunch. While these startups had transformed the realm of healthcare through pioneering and innovative solutions that aimed to address Indian healthcare’s core challenges - affordability and accessibility, the hype and buzz around these startups have been slowly dwindling ever since.
Home to over 12,224 startups the healthtech startup ecosystem has grown tremendously since 2020, from $6.8 billion and is expected to reach the $21 billion mark by 2025. However, these lofty projections have fallen flat. This has been due to the dip in the number of deals in the form of PE/VC investments.
Healthtech startups have supposedly raised a meagre $7 billion over the last 10 years across 886 deals. These numbers point towards a clear case of lack of investor confidence
Charting the trend
The imminent slowdown has gripped the health tech space for the last 2 years. Primarily dominated by the private sector, the health tech startup space has been facing choppy waters due to the dynamic M&A and PE landscape. Furthermore, the pressure has been building up in the health tech space amidst heightened investor scrutiny and changing investor preferences.
A report by Traxcn, a market intelligence platform revealed that funding in health tech companies plummeted in 2022 by a whopping 55 per cent. Healthtech startup firms received funding of $3.2 billion in 2021, while 2022 proved to be a rough year with new ventures receiving only $1.4 billion in funding in total.
Ananthu V, Co-Founder, LegUp interpreted the reason behind low investments in the health tech startup space, “Investor confidence remains low due to longer ROI cycles, complex regulations, and high burn rates.”
Industry insiders state that the market had been bullish during the years 2020-21 when several startup segments faced powerful tailwinds with a significant capital inflow. Post-Q3 2021, saw a dip in PE deals due to an economic slowdown, high interest rates and a cash crunch. Similarly, trends in M&A displayed a downward spiral towards the second quarter of 2021 up to 2022. The healthtech space bounced back in Q4 2023 witnessing a positive trajectory due to the upswing in M&A deals.
Source : Traxcn Report
Stalemate for startups
The low funding pipeline has been highlighted by the fall of Kenko Health an insurtech startup backed by Peak XV and Orios Ventures. An unfortunate fallout with the Hero group on account of funding issues and a tussle between shareholders has led to the premature closure of Kenko Health. Founders Aniruddha Sen and Dhiraj Goel challenged the conventional insurance industry with their out-of-the-box business model in a bid to improve affordability and accessibility and render a human touch especially when meting out claims. Their dreams of an evolved healthcare system met their end leading to an unsalvageable situation.
Jhuria candidly expressed “Shutdown in the Indian startup ecosystem will continue to take place, this is a sign of a mature ecosystem where only the fittest will survive.”
He also revealed that the failures in the health tech startup space are disproportionately higher than in other sectors.
He went on to offer a rational explanation behind such closures. “These shutdowns have occurred due to various reasons including reduced VC Capital since the revenge investment phase of 2021, regulatory hurdles, and unsustainable business models with high burn rates and limited value addition.”
In agreement with Jhuria, Mitra added that “Several well-funded health tech startups have struggled due to regulatory bottlenecks and long sales cycles.”
Pharmeasy, another prominent player in the e-pharmacy space once valued at $5.6 billion, saw a slump in valuation to $456 million. Funded by the global asset management firm Janus Henderson initially in 2021, the investor has slashed their investment by 91.8 per cent on account of apprehensions over the viability of the business model.
Fund of funds: A silver lining to the startup tale
FFS has proved to be impactful for several startups in the past. Alternate investment funds (AIFs) registered via SEBI have been instrumental in routing government funds by investing in qualified ventures. 15 AIFs had previously raised Rs 11,688 crore from the capital pool amounting to Rs 81,000 crore, of which Rs 21,277 crore had been invested in close to 1,173 startups. These numbers validate the efficacy and cascading effect of FFS in nurturing the entrepreneurial ecosystem in India. Nirmai, an AI-based breast cancer screening tech startup backed by Pi ventures stands out as one of the success stories of FFS.
FFS sparked ambivalence in the industry
The industry has been largely divided on the allocation towards startups. Several industry insiders and venture capital firms have welcomed this allocation and believe that this will give much-needed headway to these startups.
The industry at large had pinned its hopes on the recent budget, hoping that a nudge from the government in the form of government-backed incentives would provide a conducive environment for health tech startups to fuel innovations and strengthen their market presence.
The growth of startups hinges on substantial aid provided by the government that supports early-stage ventures to advance their research operations and accelerate their growth.
The government’s recent announcement for the startup ecosystem signals India's resolve to propel and nurture the startup ecosystem. To strengthen startups the government has announced the fund of funds amounting to Rs 10,000 crore towards advancing innovation in deep tech startups.
The industry at large had pinned its hopes on the recent budget, hoping that a nudge from the government in the form of government-backed incentives would provide a conducive environment for health tech startups to fuel innovations and strengthen their market presence
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However, this move by the government has generated a mixed bag of opinions from industry insiders. Some claim that this meagre allocation would be insufficient to save early-stage ventures from risks and closures while others are hopeful that the funds will bolster the segment.
Sushanto Mitra, CEO, Lead Angels has expressed apprehension about this move by the government. “While this infusion provides much-needed relief, it is unlikely to fully resolve funding constraints—particularly for early-stage and deep-tech health tech startups. These ventures require significant capital for R&D, clinical validation, regulatory approvals, and patient adoption.”
On the other hand, Shubham Jhuria, CFO & Partner at Aeravti Ventures expressed optimism stating that the Deep tech fund of funds will boost the startup ecosystem and will provide additional support to HealthTech startups, particularly to sub-segments like medical devices, smart equipment, surgical robots, Biotech, etc.
Mitra however ruefully added that “While helpful, this corpus may not be enough to support mid-to-late-stage health tech startups that require larger funding rounds for global expansion.”
Mitra also went on to articulate the conditions under which this policy will prove to be fruitful for health tech startups and said, “A major challenge is that these funds are often linked to co-investment from institutional investors, who prioritise IRR over long-gestation innovation. Many deep-tech health startups struggle because institutional capital is not patient enough for their timelines. The deployment speed and flexibility of the corpus will be crucial. However, a definitive assessment depends on the fine print of the scheme.”
Jhuria succinctly while talking about the limitations of the policy mentioned, “While HealthTech startups will benefit from this corpus, they are just one of many sectors vying for these funds. The allocation will be distributed across industries, making it unlikely to single-handedly resolve funding challenges in any specific sector including health tech.”
Informed experts also claim that ideally Rs 50,000 crore should have been granted given that the annual budget for the government amounts to a mighty sum of Rs 50 lakh crore. With the economy expected to touch the $10 trillion mark, this paltry amount will fall short given India’s lofty ambitions of establishing itself as a global powerhouse of innovation.
This leaves us with several questions: Will these funds suffice to help the health tech startup ecosystem thrive? Are these funds going to have a multiplier effect on the health tech startups?
Will this ‘Promising policy’ be high on performance?
While policy interventions like the FFS have a proven track record, industry insiders lack conviction on the real impact of this move. Informed experts state that a modest Rs 10,000 crore would not suffice to scale up and sustain ventures in an economy as large as India. They have also expressed dismay over the marginal amount sanctioned this year in comparison to the previously allotted corpus of Rs 81,000 crore.
Jhuria expressed apprehension over the efficacy of the policy stating that the policy single-handedly will not be able to transform the industry. “The broader infusion of capital into the startup ecosystem is likely to create a ripple effect. With increased funding, improved infrastructure, and government-backed incentives, the sector will receive a much-needed push, but fundamental transformation will still depend on execution, innovation, and regulatory support.” opined Jhuria.
Ananthu V, Co-Founder, LegUp asserted, “To truly transform the health tech space, the government must ensure efficient fund disbursement, policy stability, and better ease of doing business.”
If Indian health tech ventures need to sustain and scale up then a structured approach is the need of the hour. Strengthening India's global presence as a hotspot for innovation will require the health tech sector to flourish and thrive and a steadfast approach by the government is the only way ahead.
Nevertheless, the success of this move is completely hinged on how this policy will pan out and translate as tangible progress for health tech startups. Only time will tell if this policy move will solidify the market presence of early-stage ventures and fuel innovations in the health tech space!
