Enterprise, retail, and consumer healthtech startups – including those in the telehealth space and in the behavioral/mental health and chronic care management segments in particular – have been an object of desire in the past few years.
Since the onset of the COVID-19 pandemic, investments in them have accelerated and with the healthcare industry ripe for disruption, health technology entrepreneurs are raising steady funding rounds..
Investing in healthcare innovation: what VCs need to know
In these heady times, VCs can easily get overwhelmed by confusing information, especially if they lack clinical or health policy background to help them assess opportunities against the context in which such innovation is taking place. Of course, as with every investment decision, the importance of doing one’s due diligence cannot be overstated – but healthcare is such a complex, regulations-dependent sector that it helps to have a framework for how to think about potential investments. At Moorgate Partners we want to support you in making wise investment decisions and are initiating this blog series as a helpful resource on your healthcare technology investment journey.
To kick things off, here are a few broad strokes to guide healthtech investors as they consider investor pitches about innovations in the sector.
The basics
Trends: Some of the biggest trends in healthcare today, against which most startup ideas should be assessed, include value-based care (including integrated or whole-person care), virtual care, personalized medicine, patient-as-consumer, digital front door/patient access, staffing shortages, automation, and health data integration.
Business models: Healthcare startups typically market their products at the enterprise or retail level (B2B) or at the direct-to-consumer level (D2C). Depending on their offerings and how they plan to get reimbursed for them within the markets in which they operate, one or the other approach may be more appropriate.
Startup philosophy: Some startups address upstream or structural issues rather than symptoms of disease, such as closing care gaps, maximizing convenience through concierge care, or providing full-range female healthcare that goes beyond reproductive health services. Others deliver novel solutions such as touchless blood glucose measurements to screen for and monitor diabetes and Alzheimer’s Disease, or interactive gaming experiences grounded in behavioral science to treat ADHD in children.
Leadership team: Most healthtech startup leadership teams include a chief clinical or medical officer, although some are wholly comprised of technical profiles such as engineers and data scientists.
The reimbursement hurdle
Regardless of which trend, business model, or philosophy they embrace, one of the toughest challenges healthtech startups face throughout their lifecycle is the challenge of reimbursement. Traditional reimbursement structures often do not support the interventions healthtech startups deliver and the general financing framework in healthcare (access to new therapies or technologies is financed by either public or private payers) means that innovations must pass a high bar by proving their clinical value and cost-effectiveness before being covered by payers. Therefore, going to market before having secured long-term reimbursement commitments can be ‘the kiss of death,’ as the recent fold of U.S.-based behavioral health startup Halcyon Health shows.
Market outlook
According to a PitchBook analyst note, healthcare startups that focus on delivering personalized medicine at the enterprise level are expected to attract record levels of investment this year. Because of unresolved inefficiencies in harnessing comprehensive, standardized, patient privacy-preserving health data at scale, there is a large addressable market for companies that advance precision medicine by aggregating, curating, and integrating such data in a compliant way – and transforming it into personalized health plans. Players in this space include innovators in the clinical trial tech and operations & care management segments.
On the retail side, all eyes are on companies that optimize interactions between patients and healthcare providers via chatbots, chat platforms, synchronous video visits, and asynchronous messaging modalities. One part of such optimization has to do with enabling more frequent interactions, while another focuses on expanding options for virtually delivered care and communications. Players in this space include startups in the clinical care/digital therapeutics and mobile & digital health segments.
Investing in healthcare innovation requires a nuanced understanding of many internal, external, and contextual factors. At Moorgate Partners, we are delighted to accompany you on this ambitious and exciting journey.
We hope you found this information useful. Please let us know if there is any healthcare investment topic you would like to learn more about and we´ll do our best to address it in a future blog post.