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During DayOne’s “Open Mic Next in Health Series” 2023 kick-off event, three VCs discussed investing in healthtech in the post-COVID and global crisis reality. What are they looking for in startups? And what matters most when the golden years seem to be over?

The investing landscape has changed rapidly in the past three years. But there is good news: It’s still a boost and a must for investors to look for growth in digital health and life sciences companies.

However, startups must now go through a reality check and build sustainable business models. It’s time to prioritize solid teams and relationships with investors. That’s one of the findings from the “Open Mic Next in Health Series – Health Tech Investing: Boost or Bust?”. The event took place on the 8th of May, was organized by DayOne – Healthcare Innovation and Switzerland Innovation Park Basel Area at the Novartis Pavillion and was moderated by Anca del Rio, Health Tech Community Lead at DayOne.

The path to success through a labyrinth of traps

COVID-19 accelerated the adoption of healthtech and contributed to progress in digital health. But the economic impacts of the coronavirus crisis forced many VCs to pick up startups they invest in carefully. What’s in store for the startups now? The answer is simpler than it seems to be.

An attractive solution is not enough anymore. “The pandemic has changed a lot of things. But the laws of physics are still there – you need to provide value, know the market and stakeholders, have a fantastic product, and bring together talents that create a true team,” says Dr. med. Steffen Achenbach, Managing Director dRx Capital at Novartis Pharma AG.

In 2023 startups need to do things differently. Still, too many companies neither understand their business models nor know how to ensure product-market fit. “You have to know the pathway to profitability,” says Dr. Christoph Kausch, Managing Partner at MTIP. And the solid business model is still within reach for startups since the shift in healthcare has just begun, and with that, the healthtech market growth will continue.

There are several arguments in favor of this optimistic outlook. Healthcare is still a very old-fashioned sector and will have to be modernized due to new challenges: demographic shifts, medical staff shortages, and growing expectations of customers.

“Within the next ten years, we will experience a transformation that is to decrease the gap between the supply (human and financial resources) and demand (aging population, rising demand on health and wellness services),” says Daniel Dillinger, Investment Manager at Redalpine.

“Patients demand an Amazon-like experience. This will boost the shift from inpatient to outpatient care, from fee-for-service to value-based and personalized medicine.“

The market rules are clear: “When an investor sees a company working on innovation with a proven product-market fit that provides better care at lower cost, we are excited to bring it forward,” says Dillinger. But there are some things every startup’s CEO should consider:

• Know the ecosystem you operate on. Otherwise, it’s going to be a frustrating journey. This know-how will allow you to organize your activities around a single vertical.
• Understand what type of investments you need at a specific time.
• Develop a long-term, sincere relationship with investors.
• Think about what kind of investors you are looking for. Don’t look just for money.
• Be highly persistent as a CEO. You need to believe in yourself and your company. “Don’t take a no for an answer,” advises Kausch.

Be ready for storms on the healthcare market

The regulatory framework in healthcare can eat the best strategy for breakfast. Unlike the strongly regulated medtech market, the digital health market still enjoys much freedom that boosts innovation. But as it continues to impact healthcare enormously, it will soon be confronted with new rules and laws. Thus, healthtech startups must not only analyze the markets “here and now” or understand the differences in payment models but also develop an ability to predict further developments.

All three investors agreed they still prefer healthtech startups to classical medtech with hardware as core solutions. The reason is that classical medtech companies have many regulatory hurdles, which are sometimes not controllable. As a result, even a CE-marking can take much longer than most CEOs assume.

Another issue is scaling the solution on international markets. There is no ideal market to start your business. While the US is the biggest coherent market leading in commercialization, Europe is strong in research but fragmented and over-regulated. In Israel, it might be easy to get funded till series A but not at the later stages. According to Dillinger, it will still take Europe 5 to 10 years to mature regarding the investment ecosystem.

When the best geographical match might be confusing, this versatile piece of advice always works: Before starting a company, you should be sure that it’s a top-notch idea that will work everywhere!

Be a strategic partner to a VC, not a shareholder

“We like to see ourselves as sparring partners. Instead of funding, we aim to establish a high level of trust, truly working on the relationship with a startup”, said Kausch. Dillinger added that it is about helping the founders build their ventures and solve the challenges they face. Achenbach agreed: “We want to identify growth areas within the companies’ capabilities together. It always starts as a partnership that develops to the investment and then continues to mature over time.”

The discussion ended with five conclusions every startup should keep in mind:

• Investors use to invest in teams rather than ideas – teams of talented people that are ready to work together a couple for years.
• Be authentic and fair and treat an investor the same you would like to be treated by an investor.
• Present a movie (your journey for a startup you have envisioned in mind and on paper), not snapshots (scattered pieces) to show the future dynamics of growth.
• Have data and evidence but also answers for complex questions ready.
• The balance between vision and market reality – both are equally important.

Have you missed the “Open Mic Next in Health Series – Health Tech Investing:Boost or Bust?”