The funding tempo within the digital well being world appears to have stabilized up to now couple years. Startups on this house raked in practically $6 billion in the course of the first half of the 12 months, and 2024’s funding complete is predicted to exceed final 12 months’s complete of $10.7 billion.
Throughout a panel dialogue held final week at MedCity Information’ INVEST Digital Well being convention in Dallas, three enterprise capital traders shared a number of the questions they ask when getting pitched by healthcare startups.
What downside are you fixing?
It’s a significant purple flag when a startup can’t clearly clarify the issue it’s searching for to resolve, identified Tom Hawes, associate at Sandbox Industries and Blue Enterprise Fund.
“The factor that alerts that [a potential investment opportunity] is probably not fascinating is that if an entrepreneur simply says ‘I’ve a digital therapeutic’ or ‘I exploit blockchain’ — simply utilizing these buzzwords with out filling in what downside they’re fixing. What job are they getting achieved?” he remarked.
As an investor, Hawes mentioned he needs to listen to about the issue {that a} startup is attempting to deal with earlier than they begin explaining how nice the expertise is. He additionally mentioned the startup must show that its workforce has the mandatory expertise, expertise and community to resolve that downside.
One other investor — Emily Durfee, director of company enterprise capital at Healthworx, the funding arm of CareFirst, a payer within the Mid-Atlantic area — agreed with Hawes, including that she additionally needs to be sure that the startup is fixing a “prime 5” downside.
“I believe fairly a bit about not simply, ‘Is that this an issue that must be solved?’ but in addition, ‘Is that this a prime 5 downside for the shopper that you just’re promoting to?’ As a payer, we get lots of of firms that need to be distributors for us. And there are most likely 30 issues that we must be fixing as a payer at any given time, however we should not have the mind house to try this,” Durfee defined.
As a result of payers aren’t in a position to clear up all of those issues, they should prioritize essentially the most urgent 5 or so, she mentioned.
“I ask each entrepreneur, ‘Is that this a prime 5 downside? For whom? Why do you consider that?’ And if they will’t reply that query, I’m not going to be investing,” Durfee declared.
Do you will have any form of fee-for-service cost mannequin?
Durfee believes that value-based care is the longer term — however she isn’t prepared to spend money on firms which might be utterly depending on that cost construction.
“We’ve talked to numerous firms whose complete enterprise mannequin pitch is that they’re going to do value-based care. It’s not simply whether or not or not a startup is prepared and ready — however it is usually whether or not their prospects, typically payers, are ready to obtain and construction these contracts with them,” she famous.
Durfee “basically believes” that value-based care is the longer term, however she can be conscious that the longer term has not absolutely arrived, she mentioned.
She identified that there are numerous payers that aren’t but able to construction value-based contracts for numerous affected person populations and specialties.
“I don’t actually spend money on any firm that doesn’t have a enterprise mannequin for normal fee-for-service. That’s to not say that I need them to remain there. That’s to not say that I don’t need us to maneuver in direction of value-based care. But when value-based care is a precondition for the success of the corporate, it’s going to be actually onerous to sway my thoughts,” Durfee remarked.
Is AI core to your enterprise?
AI isn’t the wonderful buzzword that some startup founders might imagine it’s. When a startup presents an AI resolution, they’re including a layer of danger to their enterprise, famous Janet Xu, senior principal at Distributed Ventures.
“Initially, is AI 100% essential to your objectives? Second of all, how does that enhance your danger profile to the consumer that you just’re attempting to serve proper now? As a result of your AI could also be nice, however then you definitely additionally should undergo an entire completely different degree of scrutiny due to the actual fact that there’s a lot of knowledge coming out and in,” she defined.
With the intention to spend money on an AI-forward firm, Xu must be satisfied that the AI is integral to the product. She would additionally have to know that the startup is conscious of the dangers concerned and has established the right protections for affected person knowledge, she mentioned.
