The eleventh session of the day at Vator Splash Health 2016 this week brought several investors on stage to discuss finance in the digital health ecosystem.
Panelists (left to right above) included Tony Miller (Managing Partner, Lemhi Ventures), Steve Barsh (Chief Innovation Officer, Dreamit Ventures), Nancy Brown (Partner, Oak HC/FT), Jack Young (Partner, Qualcomm Life Fund), Dave Schulte (Partner, McKesson Ventures), and the session was moderated by Mark Ginestro (Principal, Healthcare & Life Sciences, Strategy, KPMG).
Here were a few key takeaways from the session.
Mental health, big data, and other hot sub-sectors
Ginestro started the conversation by asking the panel to describe subsectors that they found interesting.
Barsh said both mental health and smoking cessation are hard problems to solve, which is why we’re starting to see interesting technology and data-drive approaches. Young concurred, adding that it’s difficult to develop drugs for mental health because there are so many side effects. He pointed to virtual reality as a potentially very interesting way of addressing that market.
Schulte said he looks at broad categories like “consumerism” and the “data value chain,” or companies that are coming up with new ways to capture data, use cases, analytics, and basic infrastructures.
On the topic of big data and machine learning, Brown heeded entrepreneurs to actually be able to explain what they mean when they drop those buzzwords in a pitch. As for subsectors, she said it’s “remarkable that services are coming back” and that her firm is strongly attracted to tech-enabled services that bring a human element to the process of healthcare tech.
Advice for pitching a VC
When it comes to companies approaching firms for funding, Ginestro asked panelists to share advice for how the pitch should go.
“If you run into us at a conference, make sure to follow up,” said Brown, because they get bombarded. When the actual meeting comes around, she encouraged companies “get to the value proposition in a clear statement” so that it’s obvious the problem you’re trying to solve and how you’re solving it.
And when it comes to describing your differentiation, Brown insisted that you “don’t discredit your competitors.” This aversion to hubris was a common theme not just on the panel but throughout the conference.
“Don’t tell me you’re going to be ‘Internet of Healthcare’ or the ‘Uber of Healthcare’ or the ‘Google of Healthcare,’” said Schulte. “Hyperbolic statements destroy your credibility in healthcare.”
The best way to get the meeting, he said, was to get introduced by a credible person. And once you have the conversation going, don’t bother describing how big the market is because VCs have already done their research. Miller agreed, adding that you should always do your homework on the fund or VC you’re approaching.
A conservative future for VC funding
An audience member stepped up to the microphone to ask the panelists where they see VC funding going in the near-future.
Young says digital health has been growing year after year, which is true, though he recognized that you have to be realistic and pay attention the global market. Digital health investment activity, perhaps as a result of the global situation, decreased significantly in the fourth quarter of 2015.
This will be a difficult year for digital health companies trying to go public, Young continued, and it will be more arduous for companies trying to raise new funding. Miller went a step further, suggesting that companies trying to raise capital should either consider M&A options or prepare for a down round. (In fact, data from Q4 2015 shows that down rounds are already on the way up across most venture stages.)
Schulte and Brown both talked about how parties that don’t typically invest in healthcare have been crossing over, but Schulte believe tech-focused VCs will lose interest in healthcare when they realize how difficult it is to scale.