Investment in healthtech continues to rise. According to figures published this week by London & Partners and Dealroom, $51.3 billion has been pumped into the sector this year, representing a 280 percent increase from 2020.
That’s not at all surprising. If nothing else, the Covid crisis has focused attention on national healthcare systems and how they can be improved. Healthtech – although always important in a world where health providers are under constant pressure to do more for less – has assumed a new prominence. And as more money flows into the sector, more are coming on stream.,
So what does all this look like from an investor’s point of view. Earlier this week, I spoke to Dr Fiona Pathiraja, founder and managing Partner, of Crista Galli Ventures, an investment fund that is entirely focused on healthtech. I was keen to get her perspective on the realities of the market. Do the health providers have an appetite the solutions offered by the startups? Do the startups themselves struggle to get in front of buyers, or are they pushing at an open door?
A Bigger Picture
Dr Pathiraja began her career as a physician – a radiographer to be precise – but always had ambitions to be a leader. “I was interested in the bigger picture of health services,” she says. “I wanted to be a manager. My goal was to be the CEO of a big hospital.
Rising through the ranks of Britain’s National Health Service tends to be a protracted undertaking. Seeking a different and faster route to leadership, Dr Pathiraja became a management consultant, spent a period working for the Department of Health and also found time to complete an MBA.
The MBA proved to be a career catalyst in that Dr Pathiraja met her partner who also happened to be an investor, working on behalf of a family office. Together they made a number of healthtech investments. This, in turn, led to the establishment of Crista Galli Ventures as a specialist health fund investing at Seed and Series A stages.
“We invest in deep tech, digital health – including chronic disability management and personalised medicine,” she says. In addition to the main fund, the company also invests pre-Seed through Crista Galli Research. In this part of the operation, there is a particular focus on backing founders who tend to be underserved in the context of healthtech.
Appetite for Healthtech
So what does that general mission statement mean in terms of investment decisions? Well, as things stand, companies in the portfolio include: Skin Analytics (using artificial intelligence to diagnose skin cancer), Charco Neurotech (manufacturing a wearable device to mitigate the impact of Parkinson’s Disease) and personalised cancer treatment company, Pear Bio.
So here’s the question. This may be a good time for MedTech companies to be seeking investment, but is also a good time to be finding customers. Dr Pathiraja thinks that, by and large, it is. “A lot is happening in the public sector,” she says, citing the example of NHX – a unit set up by Britain’s Department of Health to accelerate the adoption of digital healthcare and recent startup-friendly policy changes in Germany.
But as she acknowledges: “It can be difficult to penetrate the public sector.”
To be successful, she says, it’s important that startups understand the logic of the medical profession. “You have to speak the language of doctors,” she says.
Any startup seeking to sell to a large organisation must, of course, understand its drivers, but if it’s a business-to-business pitch there will at least be a common language, usually revolving around profits, revenues and KPIs. Doctors speak a different language. “They will be talking about clinical trials, publishing and evidence,” says Dr Pathiraja.
For that reason, she thinks startups with people from a medical background on the team have a distinct advantage. It’s not simply a case of using the same terminology and metrics,, it is also about understanding the “pathways” that exist within health systems.
The Talent Issue
This raises the question of access to talent. In areas such as deep tech, MedTech startups require a broad mix of skills and professional knowledge. Programmers, data scientists and medical professionals are all there in the mix, along, perhaps, with marketers and administrators. So as the MedTech sector grows, is talent set to become a problem?
In one respect no. The talent is there. “We have a lot of good universities and a lot of spinoff companies coming out of universities. There is, however, a but coming. “To get the talent, you have to pay.”
But what about health sector talent? Doctors and other professionals have their own well-paid career paths, so is there an appetite for getting involved with startups. “A lot of doctors are becoming interested in portfolio careers,” says Dr Pathiraja.
Investment in Medtech is rising but there is still, says Dr Pathiraja, a shortage of specialists who know the sector inside out. Equally, she sees a need for greater investor diversity – 0r to put it another way, investment panels that look a little bit more like founders who are pitching to them. That means more women, more people (and women) of colour and also people from an LBGT background. Without a better balance between the profile of investors and those of founders, some businesses are likely to be underserved. As an investor who is female and “brown”, Dr Pathiraja has made a point of investing in diverse founders at the pre-seed stage.
Thanks in part to the Covid pandemic, healthtech is a hot sector and entrepreneurs (possibly)face a receptive hearing from buyers looking for new solutions. The challenge is to understand the nuances of a complex sector – particularly in terms of pathways and structures – while also accessing the talent to deliver solutions across disciplines.