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What health tech investors are really looking for in 2023: A special report

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We asked a handful of major investors to share details on what they’re looking for from your health tech business in 2023…

Securing investment is part of the growth process no matter which sector you’re in. For health technology, digital health and the like, it’s crucial to develop the right relationships with the right people, who are going to help you place your brand on the centre stage. But what are investors really looking for in 2023? 

We sat down with some of the most prominent and known investors from the health tech space, and asked them exactly what they are looking for in the next couple of years. They also deep-dived into their own experiences and shared their biggest mistakes. The responses were varied, colourful and fascinating….

Investor 1: Luke Smith – Forward Partners 

About the investor: Luke is investing at pre-seed and seed stage in Applied AI, marketplace and e-commerce businesses, that cover the healthcare industry, in addition to other sectors. He sits on the board of Sonrai analytics, a data discovery platform for biomarker development. 

Luke was previously at Reed Elsevier Ventures, investing in digital health and big data.

We asked: What are the biggest mistakes investors make?

Luke said: “In healthcare it’s very easy to get caught up in products that have the potential to solve big pain points without thinking through how they fit with existing processes and ways of working in the healthcare sector. 

“It’s no good building something that doesn’t align with existing workflows as it makes it incredible difficult and slow to get uptake. 

“Areas like remote patient monitoring and population health have struggled with this challenge. You may have a startup with a really good idea, and even a clear customer demographic, but they struggle to embed the new technology into existing processes and behaviours.”

We asked: Name the top 3 things you will look for in 2023, when you are making a decision whether or not to invest in a health tech company.

Luke said:

1: Does it solve a real problem for care providers or patients? 

“Ultimately, to drive adoption a new product has to be significantly better than existing approaches and in a traditionally conservative space like healthcare that is particularly important. 

“It’s not worth taking the risk and hassle of switching for an incremental improvement so it’s important that products address major problems and do it much better than the current approach. 

“You need to create clear motivations and incentives to achieve long term industry disruption.”

2: Health tech companies have to ask themselves – does it align with the incentives of stakeholders and decision makers? 

“Healthcare is more complex than most enterprise software and has a broader range of stakeholders.

“That can make closing deals much harder due to the need to get buy in from the full stakeholder ecosystem, which includes the patient and care provider but also other players such as insurance companies and regulators.”

 3:  It’s vital that you back a strong team who understands the space and its complexity. 

“This is because the problems in healthcare are so big, and so we often see people from other sectors building businesses in the space.

“That can work but it’s very easy to underestimate the complexity of the healthcare landscape and fail to consider all stakeholders.

“This can lead to long sales processes and slow adoption. In areas like sales, it’s important to have people with healthcare experience who understand the decision making process and can speak the same language as customers.”

Investor 2: Lisa Barclay, Nesta Impact Investments

About the investor: Nesta has been investing in innovation for over 20 years. They started as investors in deep tech to address the equity gap in early stage investment. 

Since 2012, they have been an impact investor, supporting the development of the market and proving that it is possible to deliver profit with purpose. 

Lisa and her team have just launched a new £50M strategy to back Seed and Series A ventures, alongside their venture builder Mission Studio, partnering with Founders Factory to create brand new ventures from scratch.

We asked: What are the biggest mistakes investors make when choosing where to invest? 

Lisa said: “Falling in love with the product, technology or innovation without thoroughly understanding the market and value chain in which it sits.

“So, for example understanding whether clinicians are going to accept and adopt the innovation.

“Getting swept up by the hype of a particular innovation, reading too much into other investors’ actions and taking that as a signal more than ensuring a deep understanding of the market

“Underestimating the length of time it takes to get the clinical evidence or approvals required to commercialise.”

We asked: Name the top 3 things you will look for in 2023, when you are making a decision whether or not to invest in a health tech company.

Lisa said:  “We’re looking for startups that are tackling obesity. We want to see obesity halved in the UK by 2030 and believe that technology can help us get there. 

“We want to see solutions which make a meaningful impact, have the potential to scale, and can be expanded in a cost-effective way.”

The three key trends we are seeing in which we’d like to invest are:

1: AI & data analytics in healthcare. We would like to back something similar to Skin Analytics (AI diagnostic for skin cancer), but which tackles obesity

2: We are seeing sophisticated interventions around behaviour. We’ve invested in Habitual Health to reverse Type 2 diabetes, and we are conscious of companies such as Noom that have scaled behaviour change, so more of that.

3: We are seeing biomedical innovation accelerate. We’d like to see more innovations like Oxford Medical Products.

Investor 3:  Lorin Gu, Recharge Capital 

About the investor: Lorin is a male investor in the women’s healthcare space – who has personally undergone the IVF process and understands the health tech and fertility sector from a personal as well as economic perspective. 

Their investment thesis is rooted in a thematic-first approach, thinking first about the most suitable hybrid asset-class investment approach for the sector.

Within health tech,  think about what is the true bottleneck in women’s healthcare services and fertility services, and how to most efficiently integrate and scale new technology and diagnostic solutions to the patients. This has translated into a hybrid model of venture-building plus private-equity roll-ups. 

Specifically, they are looking to change the paradigm around women’s healthcare investing.

Many health tech investors are focused on only one part of the value chain, yet to meet the fast-growing, significantly unsaturated demands for fertility, a closed-loop ecosystem needs to be built. 

Their top performers such as Kindbody, Elix Healing, Generation Prime, and Jinxin Fertility have driven innovation and access in fertility and women’s healthcare by inserting themselves as a critical nexus along the tech-to-service value chain.

We asked: What are the biggest mistakes investors make when choosing where to invest? 

Lorin said: “Health tech investors tend to back big doctors because they think that a business’ success is anchored around a famous figure or a single notable innovator. 

“I think that this is a mistake as scalability tends to quickly become a deterring issue.

“I believe the future of healthcare should be anchored around technologised-standardisation. 

“A lot of people tend to back serial exit healthcare founders, primarily due to the scarcity of expertise in the space. 

“This doesn’t always prove to be the most effective means to transfer skills and experiences. Operational skills are more transferable, but that doesn’t mean that knowledge of all health tech sectors or geographies are uniform. 

“Some founders have specialised in tackling the insurance network or the employer benefit network of particular sub-vertical in healthcare, and then believe that they can replicate this expertise to another vertical, yet that is not the case most times.”

We asked: Name the top 3 things you will look for in 2023, when you are making a decision whether or not to invest in a health tech company.

Lorin said: “We believe that the current telemedicine model isn’t sufficiently solving the capacity issue, and that many are facing difficulties post-COVID to prove they deliver stronger value propositions than their physical peers. 

“At the top of the value chain for fundamental technology innovation in 2023, we will look for health-tech and biotech companies that offer beyond-marginal-improvement IPs and global scalability. 

“At the bottom of the value chain for business model innovation, we will look towards tech-enabled, specialised business.

“They will have clear execution strategy around the most arbitrage-able pain point of a market or a sector; and we especially like niche specialisation with high pricing power due to supply/demand imbalances. 

“Regulatory pathways will also be one of the main deciding factors in our investments next year.

“Many investors who purely operate in the US are facing significant headwinds in extended approval time from the FDA. 

“We’ve adopted a much more global mindset and sought out the path of least regulatory resistance, as we seek companies with IPs that can be utilised for large international markets with faster regulatory approval processes.”

He added: “Considering the expected dropoff in investment capital in 2023, identifying the right management team who focuses on the basics (cash flows and profit margins) as much as focuses on the narratives (education, linkage to social movements, trust building) will be critical for backing long-term sustainable businesses.”

Investor 4: Daniel Dickens, KHP Ventures

About the investor: KHP Ventures was launched in July 2021 with the support of founding institutions from Guy’s and St. Thomas’ and King’s College Hospital NHS Foundations Trusts, and King’s College London. 

To date, they’ve  made 15 investments across digital health and MedTech, co-investing alongside top VCs, angels, family offices and life sciences funders. 

They’ve  focused on building our clinical and scientific diligence capabilities, leveraging the world-leading expertise within our health system. Many of the founders we’ve partnered with are NHS clinical entrepreneurs and academic entrepreneurs. 

We asked: What are the biggest mistakes investors make when choosing where to invest? 

Daniel said: 

“Prior to making decisions, we invest time with founders, expert advisors and our health system partners to work out exactly how we can add value to the company.

“Whether it is through real world evidence generation, validating new models of care through deployment or otherwise, we will only proceed if we have high confidence that these activities will unlock growth for the company and improve patient care.

“It is sometimes all too easy as an investor to get caught up in the race to win a deal, and not enough time on the game plan to win together afterwards.”

We asked: Name the top 3 things you will look for in 2023, when you are making a decision whether or not to invest in a health tech company.

Daniel is looking for:

1: Credible, multi-disciplinary founding teams with unique insights, proven delivery capability and a novel approach to solving problems;

2: A track record of evidence-based product development with a roadmap of rigorous clinical validation activities supported by favourable health economic drivers;

3: Highly-scalable solutions that have the potential to move the needle on the most pressing challenges in healthcare, for the diverse population we serve in South London, across the UK and globally. 

Investor 5: Jamie Tomalin, Triple Point Ventures

About the investor: Triple Point Ventures started in 2018 with a mandate to invest in early-stage ‘challenge-led’ businesses.

They are B2B generalists investing up to £1.5m from pre-seed – series A and have a portfolio of 50+ startups including 5 companies featured in Holon’s 2022 Europe Health Tech 200 (Semble, Quit Genius, Scan.com, Gripable, Knok). 

Healthcare is a core focus and in particular they are excited by the potential for enabling digital health infrastructure in this next decade.

Jamie joined the team in 2021, having previously worked in the Healthcare Investment Banking team at Barclays. Since joining he’s led 5 investments for the fund, including the medical imaging platform Scan.com, where he is a board observer.

We asked: What are the biggest mistakes investors make when choosing where to invest? 

Jamie said: “There is nuance between stages of investment, but industry research published by CB Insights indicates that the number one reason for start-up failure, cited in 42% of cases, is the lack of market need. 

“While there are many great ideas out there, healthcare professionals are extremely time poor, they are looking for painkillers not vitamins. 

“This is why tangible and evidenced backed ROI for payor and patient should not be glossed over.”

We asked: Name the top 3 things you will look for in 2023, when you are making a decision whether or not to invest in a health tech company.

1: Team:

“We invest at the earliest stages of a company’s formation and so ultimately, we are taking an informed bet on the execution abilities and resilience of the founding team. 

“We are looking to partner with unashamedly ambitious entrepreneurs that have a balance of healthcare domain expertise and an understanding for what building a technology business means.

“While it has been sad to see so many talented individuals laid off during the 2022 market correct, we are excited by the impending autophagy of talent that will be a tailwind for the creation of new healthcare start-ups.”

2: Unit economics:

“As the era of cheap money has ended, public markets have rerated and are no longer rewarding unprofitable growth. 

“While we would not expect every start-up to have profitable unit economics from the outset, it is important innovators have a sophisticated understanding of how this is achieved in the medium term and can articulate the assumptions required to get there.

“This is less of a concern for pure SaaS healthcare businesses, but for tech enabled services we find gross profit to be a good starting point. 

3: NHS Virality:

“While the regulations and bureaucratic nature of the NHS can present more of a challenge for a disruptive start-up, it can also provide opportunities. 

“In our experience, successful products often reach a point of NHS virality, where the dynamic flips as the product reaches a credibility threshold and demand can become driven by inbound requests. 

“Such products are typically punctuated by very high NPS among target clinicians/AHPs which is then leveraged by virality loops in the product, such as the ability to collaborate directly with team members or colleagues in another trust. 

“The concept of NHS virality is ill defined, but involves looking at metrics like net revenue retention, user activation, pipeline analysis and spending time talking to customers.”

Investor 6: Tasneem Dohadwala, Excelestar Ventures

We asked: What are the biggest mistakes investors make when choosing where to invest?

Tasneem said:

Investing based on trends:

“It’s ok to invest in a hot market but that shouldn’t be your only reason to invest – you need to look at the fundamentals of the opportunity, not just the opportunity of a hot market.”

Being the only investor at the table:

“Having multiple investors as part of the round is important – it shows that the company was successful at fundraising and also allows for more successful fundraising in future – insider rounds

Having more minds at the table:

“When decision-making.”

Picking niche markets:

“You need large markets to then support significant exit values.”

For medtech – don’t invest in widgets:

“Low priced products will require tremendous volume to get to a meaningful scale – devices commanding high ASP will require less sales volume.

”Also, widgets can be challenging to get the attention of providers as well as Hospital purchasing orgs, who don’t like to buy one low priced product from a small company.

Make sure the opportunity can stand by itself.

“The value of the opportunity shouldn’t be reliant on another product happening or being purchased, so be master of your destiny.”

Be realistic about how much provider or user behaviour change/workflow change is viable/possible.

“Yes innovation usually requires change but how cumbersome is it? Is it possible or prohibitive?”

We asked: Name the top 3 things you will look for in 2023, when you are making a decision whether or not to invest in a health tech company.

  • What is being seen with more clinical work being completed and what more is to come.
  • The large magnitude of improvement in patient outcomes
  • Upcoming strategy for reimbursement and payment.
  • The company’s market size
  • The leadership team’s background

Investor 7: Shawn Ellis, Distributed Ventures

About the investor: Shawn Ellis is managing partner at Distributed Ventures, an early-stage venture capital firm specialising in health tech, and other investments.

With nearly two decades of experience spanning early-stage venture investing, operations, corporate strategy, and investment banking, Shawn helps accelerate the fund’s health tech portfolio companies’ revenue and growth in the initial stages of their lifecycles.

We asked: What are the biggest mistakes investors make?

Shawn said: “Many investors focus on the value proposition of solutions in a vacuum without considering how individual health consumers will gain awareness or access to a solution as an employer benefit or via their care providers.

“As a result, many offerings are drowned out in the noise of solutions thrown at health consumers, and the promise of the value proposition is never realised.”

We asked: Name the top 3 things you will look for in 2023 when you are making a decision whether or not to invest in a health tech company

Shawn said:

When considering new health tech innovators to invest in, we will be looking for

    1. Large markets with unaddressed needs, particularly in an environment in which benefit sponsors and households are engaged in financial belt tightening
    2. Limited competition with pronounced barriers to entry
    3. Understanding the natural distribution strategy for health consumers to access the solution and realise the promise of a solution.

 

 

Don’t miss…

The most prominent digital health investors of 2022 – a special report 

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