Drug discovery and 'techbio': What Europe's health startup investors are betting on in 2023

Bits & Pretzels Healthtech, held at the ICM, Munich.

Riddhi Kanetkar / Insider.

• We attended the Bits&Pretzels Healthtech conference for startups and VCs.
• They named drug discovery and the emerging 'techbio' sector as areas of interest.
• Here are the 5 key takeaways from the conference.

COVID-19 fueled huge interest in health-tech startups, with VCs pouring a record $25.1 billion into health and biotech startups in 2021.

The sector experienced a subsequent slowdown, in line with broader pall in startup funding. But in 2023, health-tech startups are faring well compared to their counterparts in fintech and climate. 

We went to the Bits&Pretzels Healthtech in Munich, Germany, and spoke with investors, founders, and operators from across Europe.

Here are some of their takeaways for the future of health startups and innovation. 

1. 'Techbio' is a priority 

Techbio (not to be confused with its sister discipline, biotech) is the meeting point between technology and biology. The idea is to innovate the ways in which hardware and software can speed up processes such as the discovery of new drugs, or streamlining the collection of data in drug trials. While biotech is research-based, techbio focuses on the application of technology and engineering to bring this research to market.

Startups in the space are bringing new applications of tech to fields such as drug discovery, bioengineering, and patient care. 

It's a pretty nascent field, but 95% of the VCs Insider spoke to had techbio on their agenda for the coming year. It points to sustained appetite for digitizing many of the processes in the pharma industry, which many investors see as an untapped opportunity. 

2. VCs are still betting on drug discovery 

Even though funding into drug discovery startups has significantly stalled this year, at just $126 million, startup valuations have picked up since 2022.

Drug discovery is a process which aims to develop new medications and therapeutics.

Startups have been deploying AI to streamline the development of drugs for about a decade, and the space is building up traction with investors. VCs are bullish that a well-calculated bet on certain drug discovery upstarts could generate lucrative exits and returns, especially via Big Pharma companies.

3. AI can be a game changer — but not everyone needs to deploy it 

Despite the huge uptick in interest since the release of OpenAI's ChatGPT chatbot, artificial intelligence wasn't necessarily top of every investor's agenda.

Many VCs agreed that AI has potential to transform healthcare, especially in streamlining admin tasks for health workers, to speeding up the diagnostics process. 

But many are also aware that any use of AI would be accompanied by stringent regulation, given the potential to misuse confidential patient data. Many of Europe's top investors were also cautious about startups applying AI for the sake of it, a time and cost-intensive process. 

4. Health data is a gold mine 

Clinical data has always been important, but a wave of startups have started to monetize their collection of this data — and VCs are looking to cash in. Clinical data is the umbrella term for data gathered during clinical trials, as well as during the delivery of care for patients.

One gap identified by founders is that pharma companies are struggling to acquire data on clinical trials and drug candidates.

As AI can't wholly replace the clinical trials process, startups are tapping into a potentially lucrative market, and VCs were very enthused by these emerging players.

5. Health-tech VCs won't splurge cash

While COVID-19 did give healthtech startups a chance at the spotlight, they were still overshadowed by their counterparts in fintech and software-as-a-service. Part of the reason was that health-tech VCs, by their own accord, did not splurge as lavishly as other specialist investors. 

That's changing a little as early-stage healthtech startups are leading the race, nabbing $550 million — double the amount of funding as fintech startups — in 2023 so far. Still, healthtech VC say they are mostly standing by their prudent approach amid a tumultuous tech market. 

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