When looking for an investor for your health technology company you should approach the search the same way you would the hunt for a romantic partner.
You may have to kiss a few frogs first, but if you communicate honestly and are open about your expectations, you’ll find just the right match.
Nurture the relationship and they’ll stick with you until the end.
That’s just some of the insightful advice from a global panel of experts who sat down with Health Tech World’s Alastair MacColl recently to talk investment and its role in helping to drive business success.
David Dwek, chief investment officer and advisor with Tyson and Blake, a corporate venturing company in Sweden and the UK, opened the discussions.
He gave an overview of the industry, describing the market as “very volatile” with some write downs in valuation and a sell off within the technology sector.
“We don’t know how long that will last for, but everyone’s catching their breath after the sharp rises of a few years ago,” Dwek said.
However, he stressed that the health technology sector specifically is growing, with £15 billion of funding raised last year.
The “COVID effect”, the move to digital health and the increasing use of AI techniques mean there is interest from investors, but they must be confident there is a market for the product.
And that must be done by showing validation through pilots and through partnerships with bigger companies.
“All these elements are really important to validate that your product, company and entice investors to put money in,” he said.
One of the most important things that health techs can do when meeting potential investors is to decide if you click, said James Paton-Philip, corporate partner at Hill Dickinson international law firm in London.
“You’re going to be sitting alongside these investors for some time. It’s not just, are they specialists investing in this space? That’s obviously key, but think about the human angle.
“Can I actually work alongside this particular investor for years to come? The more you can click with those investors, the better.”
Panellist Fern Lazar, managing partner at FINN Partners global communications consultancy, described the relationship with an investor as “like a marriage” and said companies have to be “very adamant about finding the right partner”.
“You do hope that ultimately there’s light at the end of the tunnel, and there will be an amicable and very rewarding separation at the end.”
He also stressed that the process of finding the perfect partner may be beset with rejection, describing it as needing to “kiss a lot of frogs”.
But it is important to “not be so desperate for the money that you get into bed with the wrong people”.
As the founder of a university start-up Frodsham had never raised money before, but in the seven years since the company’s inception he has welcomed three different investments.
While looking for the perfect partner can be daunting, it’s a very informative and valuable process, he said, even if the answer at the end is no.
“We did a lot of work listening to feedback to try to understand why the investors that we thought should be really interested in what we had to offer weren’t necessarily coming back with offers when we expected them to.”
He explained that the process can be really valuable in terms of informing messaging and investees should not be afraid of asking for advice from potential investors.
It enables companies to refine how they are getting their story across, how they are pitching their company – where they are and where they want to get to.
It also allows entrepreneurs to look at the common questions and concerns that always come up, along with their overall strategy.
“Getting your vision of success aligned with the investor’s vision of success is absolutely crucial for you to build a relationship that’s going to enable you to actually work together.”
Health technology companies have to work through several processes before a product can reach the market, and it’s important that any investor is aware that it is not a quick pay out.
“In order to achieve valuations and to get investors to sign on the dotted line, companies [often] put very high expectations for progress development, patterns, sales, etc,” Dwek said.
“It’s really important to manage everyone’s expectations, to communicate clearly with investors, and even if there is bad news to communicate back quickly.”
He said the best way to approach an investor is to keep their expectations low and over deliver.
Lazar agreed, stating that the “old adage in investor relations is understate outperform”.
“I always like to tell our clients that you compete against yourselves when you raise your expectations unduly.
“There’s nobody else expecting you to say what you what you’re doing except for you, so you might as well… set reasonable expectations and then outperform them.”
One of the traits to look for in an investor is knowledge, experience and understanding of the health technology market, Lazar told the panel.
“It is unlike any other market. There’s no other market where you have to rely on external physicians and academic medical centres to actually prove that your [product] works.”
She said companies have to be very adamant about finding that right partner because they will be involved for a long time.
Frodsham agreed that there are many benefits to having knowledgeable investors, “you can learn a lot from them and you want particularly early days for investors to get involved”.
He stressed the importance of having the courage to turn an investor down if you want an investor with a different background and experience.
Mati Gill, chief executive officer of AION Labs, an innovation lab in Tel Aviv, said knowledgeable investors are more likely to be patient and look at the long-term view.
“If they really understand our industry, they’re not going to be expecting an early exit or return at an early stage.
“And I think that’s key for an early stage start-up to be able to have investors that have their back, understand they’re going to go through some trials, that biology doesn’t always work the way you plan it.”
Paton-Philip warned: “If the partner doesn’t have the relevant experience, and doesn’t go into the relevant investment round with their eyes fully open, that can easily cause tensions down the line.”
As well as helping to finance the project, investors come with an array of other benefits.
“Where the investors can really help the companies is on partnerships, on preparation for the next round of funding, and taking a global view – particularly on marketing,” Dwek said.
And that allows the company time and space to focus on their day to day work.
They can also help a start-up to professionalise, “to act a bit more like a big business” so that it is ready for its next step.
“You don’t know when that window is going to come, therefore you need to be ready, and preparation is absolutely key.”
Joining the panel during the second half was Jamey Edwards, chief operating officer of StartUp Health, founded in 2011 to invest in a global army of health tech entrepreneurs.
He said: “There is now a more collaborative process between investors and the companies themselves, versus just being capital.”
“Don’t give up,” Frodsham said. “You’re going to speak to a lot of people and sometimes it can be demoralising. But ultimately you really only need one yes.
“So keep at it whilst listening to the feedback of the people you’re speaking to.”
Gill recommended that companies raise money when it’s available, not when you need it, and don’t raise expectations beyond a manageable target.
“Find the right investors that you have a deep respect for, that you really appreciate their guidance and not just the cash,” he added.
Edwards said investors look for companies that are led by people who have a very personal reason that drives them to solve the problem.
Key is “having a mindset that makes you anti-fragile, where you don’t just navigate challenges and failures but use them as a launching off point for learning and growth”.
Bringing positive energy to every situation, along with similar core values and philosophy, will also attract investors who want to partner long term.
“At the end of the process, if you’re left without investment, evaluate and adjust and do it again.
“It’s important that the entrepreneur be in charge of that process, so it’s not in charge of them.”
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