Although healthcare organizations and venture capital firms may have shifted their priorities during the Covid-19 (novel coronavirus) pandemic, digital health startups are actually making waves and breaking venture capital records by raising $6.3 billion in the first half of 2020. With so many newcomers in the field, it is more important than ever to look for a digital health venture capital firm partner with the right relationships and expertise.
There are a couple of things you need to consider when it comes to choosing a digital health venture capital firm partner and they are as follows:
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Grace Under Pressure
A lot of people are rushing to invest in health tech companies nowadays. Most of them are first timers, as companies are quickly rethinking their consumer and enterprise technology priorities thanks to changing needs and financial constraints. As a result, digital health is a booming market nowadays, but this won’t always be the case.
As a startup, you need a venture capital partner that can remain calm in a bull or bear market. Grace under pressure, if you may. It is important, now more than ever, for investors to rely on the data at their disposal—from their own research and also from their networks—to determine market trends and make the right decisions. Nowadays, “going with your gut” is considered a risky move.
Most startups venture into the digital health space by setting up direct-to-consumer healthcare solutions, in the same way that they would set up DTC products for other verticals. Although this can and may work for some startups, experienced venture partners can help founders determine—and eventually sell to—the right enterprise customers.
Government agencies, unions, employers, brokers, providers and payers all offer startups the chance to sell to an established organization with a dedicated user base. But, there’s a subtle distinction for each pitch, whether it’s ROI expectations or the threshold for financial and clinical risks. A digital health venture capital firm partner understands these nuances and guide startups to the customers whose needs match perfectly with their vision.
Digital health startups should look for stability in their digital health venture partners. There are two types of stability and they are as follows:
Investment bankers are not the only ones who should be providing advice to digital health startups. A digital health venture capital firm partner armed with a team of scientists, data analysts, and operations specialists can provide some form of assistance, introduce founders to a wider professional network, and evaluate opportunities from more than one angle. In addition, having a balanced team leaves less room for it to be siloed—partners work and make conscious decisions together.
Healthcare is often considered not as a single trillion-dollar market but rather several billion-dollar markets. If an investment firm puts its focus on only one of those markets, it might end up suffering from tunnel vision. A firm that invests across a variety of these markets—such as medical devices, care management, consumer engagement, and also core IT infrastructure—has a balanced outlook of what’s happening within the healthcare space and where major opportunities for innovation can be found.
A few digital health venture capital firms have a hands-off approach to investing. However, a good and reliable venture partner is simply that—a partner in creating connections, providing expertise, and building a pipeline, all with the vision pointing to long-term growth.
Partnerships help founders fill in the gaps. Plenty of startups have great technology but need help in carrying out their vision. This often means improving the senior management team, enforcing a governance system, organizing a financial or regulatory audit, electing an investor to the Board of Directors—or all of the above. Building a successful business from scratch isn’t a walk on the park. It takes a lot of time and effort, but this level of partnership gives way for a startup to thrive. It also provides a guarantee that a venture partner won’t sell out when things get tough.
Venture capital firms helping a startup raise capital in its early stages is one thing, but the real test of success comes from later funding rounds and exits—this can only result from having a long-standing partnership.
Below are some examples of successful digital health startups financed by the right venture fund.
- LetsGetChecked, an at-home diagnostics provider, was able to expand its business model by working together with companies in providing Covid-19 test to healthcare and frontline workers. The startup was granted access to a newer, larger customer base and is the perfect addition to its existing cancer screenings, sexual health, diabetes A1c, and other diagnostic tests. Just last May, the company announced a $71 million Series C financing.
- Redox, a pioneer in EMR interoperability, sealed the deal on three successive financing rounds, each at a higher valuation. The company also announced recently connecting its 1,000 hospitals. Early investors in the company introduced a few key executives and promoted high-profile business partnerships that helped advanced its growth.
- Elder care provider Welbe Health successfully signed multiple financing and expanded its business from concept to large-scale operations. The company’s early investors helped the company establish an innovative financing strategy, which in turn helped in accelerating expansion.
- DermTech, a testing startup specializing in skin cancer, announced a $65 million private placement back in March 2020. The company’s early investors advised it through two major parts of its maturity—creating a new market category of precision dermatology and publishing results of seven trials that increased diagnostic test accuracy up to 98%, well above the industry average.
In a rapidly changing market and uncertain time, it has become even more important for digital health startups to work with a digital health venture capital firm that looks beyond short-term gains to achieve long-term success. In order to find a firm that can promise and guarantee these results, startups need to focus on the topics enumerated earlier. Digital health startups will notonly find this article useful but also gain insight on the experience and network venture capital firms offer.