While the world has been navigating through waves of the Covid pandemic since last year, fearless entrepreneurs have been navigating the waves of innovation to create a better post-COVID future. The healthcare sector has been on the front line. But how does it look like being a health startup trying to raise funds in the midst of a pandemic? We’ve compiled a list of our top 3 takeaways when it comes to lessons learned from raising funds for healthcare startups during the COVID-19 pandemic. To learn more about our startups and the DayOne Accelerator, visit our accelerator page.
Lesson 1: It’s A LOT easier to find users than investors
Digital health startups know this very well: as entrepreneurs evolving in a highly regulated environment, they need to adopt a multi-layer approach. Not only do they need to build an amazing product that addresses the needs of both end-users (e.g. patients and carers, healthcare professionals) and customers (e.g. hospitals, pharma, insurance), they also need to get deep into regulation, understand the healthcare system very well, and have access to many different stakeholders in this complex landscape.
While the pandemic might have paved the path to funding for COVID-specific interventions, our other startups have also found that access to customers and end-users is easier than ever thanks to COVID-19. With patients, healthcare practitioners (HCPs), and any other stakeholder now being a click or an email away, getting in touch with potential customers or end-users has never been so easy. A note of caution though: if the quantity of people you can approach has undoubtedly increased, the quality of contacts may suffer. We still advise our companies on the value of quality over quantity.
Startups have been reaching out and finding enthusiastic end-users and potential customers willing to test their solution and participate in a pilot… but it is very often not enough to show traction. By this, we mean the famous “traction on the market” that investors want to see before they decide to put even a penny in a venture. If our startups sometimes have the feeling they are running in circles – it’s because investors want to see traction, but hospitals and patients want to see backing before investing their time and their own resources. Closing this loop is hard, and your network is key. We are proud to have seen all of our startups break through this cycle over the past 6 months, step by step, and we will keep accompanying them in the future, looking forward to see one of them land on the “unicorn” list in the coming years.
Lesson 2: The market is warming up, but Europe is still tough
With the COVID pandemic, it has been no surprise to see a massive influx of funds to the healthcare space, in particular in digital health. According to a Galen Growth report on Digital Health Ecosystem Key Trends, FY 2020: “In 2020, digital health venture funding across the United States, European key markets, the Middle East and Asia Pacific closed at $25.0 billion, up 34% YoY compared to 2019. But European key markets represented approximately only 5% of the global funds deployed.”
US and Asian markets, known to be risk-takers and prone to invest in teams and ideas, have been warming again. Q1 2021 showed some positive signs with global healthcare funding hit a new quarterly record (Source: CB Insights, Q1 2021 State of Healthcare) with $31.6 billion funding worldwide, nearly two-thirds of it were in North America ($19.9 bn), Asia representing $7.6 billion. Europe is catching up, with $3.7 billion funding in Q1, and will represent a great opportunity. With the fragmentation of the European market, it naturally takes longer to achieve success, but the European continent represents a fantastic platform to test a solution across countries and diverse healthcare systems, and scale up worldwide. There are already 70 European startups that have now hit the $1 billion valuation mark as of May 2021 (Source: Sifted) and achieved the famous “unicorn” status. The French health insurance Alan raised 185 million euros, valued at 1.4 billion euros, is the latest inspiring example. This gives hope to our European startups and stamina to persevere in their home continent! We also believe Switzerland is a perfect location to launch and scale solutions in the European market due to its multi-lingual culture and access to top markets. Watch this space for more on this soon.
Lesson 3: Creativity is key!
In this context, startups have been particularly hit by the lack of roadshows and in-person events, and it is no news that it is generally difficult for startups to find funds, especially in the pre-seed stage. Indeed, we notice that in healthcare there is a need for a lot of liquidity in order to safeguard companies through to their next milestone or raise compared to other industries. It is not enough to build a working prototype, you need to be able to cover running costs to test it with further users such as patients and hospitals. This can be expensive and timely in healthcare and often companies simply do not survive.
Our current cohort of the DayOne Accelerator and its Alumni have been relentless in looking for funds… they have also found creative ways to solve this challenge! Beyond the classical pitch competition to try and win financial prizes, many of our teams have been juggling with developing their dream venture and finding ways to provide for their family’s daily life needs: leveraging their “pre-startup” life and skills to free-lance on projects and bootstrap, delivering masterclasses at the university or business schools, providing patients’ insights, developing transferable content that can be adapted for remunerated projects, etc., and applying for grants to bring them ever closer to that next raise. All the teams have been very resilient, resourceful, and perseverant, and it has been a great pleasure to see them evolve over the past 6 months of our acceleration program.
Do you want to support our digital health startups advance on their journey to solve patients’ needs? Join us on the upcoming Demo Day on 17 June, 17:00-19:00 CET to discover their demo and hear their pitches!