The private healthcare market in low- and middle-income countries (LMICs) has grown significantly in the last decade and only increased in importance during the COVID-19 pandemic. Businesses that work across the health sector play an important role in driving innovation, increasing impact, and filling gaps and needs that the public sector can’t meet.

But many health entrepreneurs struggle to scale their ideas into viable businesses. For example, during the “post-launch” stage, many businesses in LMICs fail as they accrue operational expenses, such as staffing and product development, but have not yet acquired the customer base and revenue needed to cover those costs.

While in this stage, these businesses are too large for microfinance loans, but too small and early-stage for most private financing available, leaving many to fail entirely. But according to a new brief, Improving Health Outcomes by Delivering the Right Support to Private Health Start-ups, the right mix of business development and financing can be key to ensuring their success – providing it’s tailored to a business’ phase of development, markets, and unique needs.

In the health sector in LMICs, this business-oriented support is still emerging, partly due to the large contributions of donors and official development assistance for health service delivery over decades. When people’s lives are at stake, the most expedient way to achieve impact has generally been through grants for direct service and commodity procurement.

Stephanie Gallagher, Palladium Senior Technical Advisor and co-author of the brief Improving Health Outcomes, explains that there is a tension in the health sector between quickly growing start-up businesses and ensuring patient safety. “Though the pandemic spurred innovation and growth in the private healthcare market with a focus on digital solutions filling gaps that the public sector couldn’t address, businesses have to be wary of growing at such a fast pace that it’s unsafe for their users,” Gallagher says.

“There is a difference between start-ups selling consumer goods products and those providing life-saving medicines and services. The business development services and financing support we provide to them to grow their businesses must take this into account.”

Success Requires Partnerships

As new health emergencies emerge, further stretching the demand on limited public resources, additional people and companies innovating to deliver health services and commodities will continue to be required. The brief finds that as a result, business development services’ providers and novel forms of blended and private capital to support health enterprises must also expand to ensure their success and scale.

While many businesses in the sector, especially in LMICs have long relied upon development or international aid funding, the addition of private sector capital is critical. “The problem, Gallagher notes, is that many health entrepreneurs and businesses are unable to access commercial sources of capital, whether it’s because they’re from rural communities, or simply don’t have the right connections, credit history and past performance to receive financing.

“A lot of health startups are founded by people from the communities they’re serving, and they have fantastic ideas and really know what to do and what’s needed but aren’t connected to or even aware of financial institutions and business development service providers that can support their growth.”

But with the right financing and business development support, health startups can make a meaningful difference in the sector. “Although there are still barriers to accessing digital solutions in LMICs, entrepreneurs are consistently and creatively using technology to provide services that leapfrog past the bloated infrastructure and heavy-handed health systems that we see in high-income countries,” explains Gallagher.

Though she acknowledges that many health startups have flourished in a largely unregulated environment, she maintains there’s still room for course correction as startups have and will continue to play an important role in innovation for the health sector. “The public sector can’t do it alone and that’s where health start-ups and entrepreneurs come into play.”

The brief showcases two successful health startups, both female- and locally founded and led, that with access to blended finance and support through an incubator program, are now flourishing.

Download the report and contact info@thepalladiumgroup.com for more information.