Though health is a massive part of the Everyday Economy, it’s also one of the most challenging to invest in. For many years, NextView has looked at many health-related businesses but invested in relatively few. We wanted to learn more about the nuanced industry market forces before applying the same hands-on investing model we do with tech startups in other verticals.
I should make clear that we are not life science investors. We don’t seed companies that are developing drugs or medical devices that will require FDA approval. It’s a world that doesn’t fit our seed-focused model and fund strategy.
Outside of life-sciences, we’ve noticed something interesting emerging: There is a huge dearth of seed capital for health care services and software-driven health-tech companies.
The venture capital market in this category is fairly concentrated among series A and expansion-stage funds that prefer to invest in companies with substantial revenue. The seed ecosystem for health companies is much less robust than in traditional software. Some of the leading health care investors like Venrock will hatch companies or seed very proven teams pre-launch. But the vast majority of health companies end up relying on a combination of angels, niche funds, and other bespoke funding sources, and end up hitting a funding gap when looking to raise their first few million dollars to prove commercial viability.
Many of these companies, however, exhibit similar characteristics to the things we invest in outside of the health vertical. They can be surprisingly capital efficient. They can emerge and thrive in a broad set of geographies. And their businesses are increasingly software-driven, often using data and machine learning to create increasing returns to scale.
We’re hoping to work with more startups affected by this fundraising crunch. Specifically, there are a few trends we’re keeping an eye on.
Health Tech Trends We’re Watching
As we’ve gone deeper into the health care and healthy living space, we’re noticing interesting companies emerging in a few areas:
1) Augmenting Physician Care
The first is around health care products and services that augment physicians’ standard of care by using modern software, analytics, and sensors. Patients experience these products or services directly, or they are tools used daily by health care practitioners to enable better patient care for large portions of the population. NYC-based Heartbeat is a good recent example of a company like this.
2) Direct-to-Consumer Health Products
The second area is direct-to-consumer health products and services. Increasingly, we find that consumers are taking their health outcomes into their own hands, armed with the multitude of information on the internet and an increasing awareness that 95% of what influences healthy living happens outside of the doctor’s office. This could include areas like mental health (as in our portfolio company 10% Happier), dental health (such as Smile Direct), nutrition and exercise, pain management, and other areas that impact the everyday life of tens of millions of people.
These businesses may start with a relatively narrow wedge of the industry but expand to a broad set of the population. For example, our portfolio company WHOOP started out as a product focused on elite athletes, but over time has expanded to prosumer customers, medical researchers, and front-line workers at large-scale employers.
3) Health Data Applications
The third area we are focused on is new software-driven applications of health data. We are increasingly living in a data-rich environment, with more and more information available about our bodies, our genome, and our health care system. We are excited about software entrepreneurs who are diving into this emerging wealth of data to develop new applications and business models that this market may never have encountered before.
Many of these founders are creating businesses that are an ambitious blend of data, software, and services. We’ve invested in a few stealth health care services and insurance businesses that fit this bill, but outside our portfolio, companies like Amino Health (founded by some excellent NV portfolio alumni) as well as genomics and diagnostic testing businesses like Color and Confer also fall into this category.
Admittedly, the health theme is the newest for us here at NextView, but one we plan on pursuing for many years to come. We’ll likely tread a little more slowly here and partner extensively with our friends in the ecosystem. We find that our stage and end-user focus tend to provide a strong complement to firms or angels that have deep domain knowledge but are less comfortable at the earliest stages of a business. If you’re building something that aligns with this theme, we hope you’ll get in touch.