How to Approach and Build Relationships with VCs in Digital Health? Digital Health Interviews: Sebastian Anastassiou

In the new episode of Digital Health Interviews, our host Alex Koshykov and our guest Sebastian Anastassiou discuss the importance of building relationships with investors, Nina Capital and their focus on pre-seed and seed stage companies, mechanics of how they invest, the success of the first fund and so much more.

Introduction:

Sebastian Anastassiou: Principal & Head of Investments at Nina Capital. He has a neuroscience background but left the lab behind to transition into the commercialization of early-stage biomedical and healthcare research, intellectual property management, technology transfer, and venture capital within the life sciences and healthcare industry.

Sebastian Anastassiou: “When I was interested in neuroscience, I spent most of my time in London: I was busy with life science strategy consulting, but most of my time was spent at the University College of Osteopathy, working in the commercialization team. We were responsible for commercializing biomedical research, which was produced by the academics at the university. I accessed technologies and research for their patentability and how we can protect them with intellectual property. After that, I came to Barcelona to do an MBA at a business school, and a part of that two-year program was a summer internship, which I did at Nina Capital. Then I became a full-time employee. Now I am the Principal & Head of Investments at the firm.”

Nina Capital is a relatively small fund. Its core team is of seven people, six of which are on the investment side: “Everyone does a bit of everything: we are split into different focus areas. I have a focus on the portfolio side, so it means a lot of portfolio management working with our CEOs and founders on supporting them and leading the follow-on strategy.”

With Nina Capital’s strategy, when it comes to investment, they spend 60 percent of their budget on follow-on investments: “Once we’ve invested, the majority of the rest of the money we save to invest again in our portfolio companies. The money we put in every single portfolio company varies. And this follow-on strategy is a big part of my role as well as the possibility of doing due diligence and analysis of new opportunities to make investments.”

Nina Capital is a specialized venture capital firm investing exclusively at the intersection of healthcare and technology: “We like solutions that can be based on AI as well as pure software, hardware, or a mix of both; it can be regulated medical devices or unregulated healthcare tools. We also have an investment in a medical education space: a platform focused on continuous education for medical professionals — it impacts the healthcare ecosystem as a whole. In terms of our origins, our founder Marta (Marta Gaia Zanchi) spent most of her professional career in California at Stanford University, where she led the Biodesign program, focused on teaching medical and engineering backgrounds to create digital health and health technology startups, based on the design thinking approach. They take design thinking identifying the core need in the healthcare space and developing a solution to address that need. This Biodesign thesis is how we look at companies. If they truly understand what this need is and they’ve developed the solution to address it, that’s what we look for.”

The company is based in Barcelona, but it invests all over Europe (about 60 percent of its focus is here), and the rest is mostly in the US and Canada, and they’ve made a couple of investments in Israel as well: “We have a deep understanding of the US healthcare ecosystem and the way the healthcare system works there as well as on the European side, even though there is no such thing as a European healthcare system. Each country is extremely different, but from an umbrella perspective, they have similar principles of mostly value-based care in Europe versus more of a fee-for-service type model in the US. We have networks in both, and we look to bridge that so we help our companies both go to the US and come from the US. We want to see companies with the ambition to be global.”

The spot of the company is the pre-seed and seed stages: “That’s our remit: to invest in and support these early-stage founders to get to a strong Series A & B position. But we will not invest further than that.”

So what goes on behind the scenes once a startup reaches out? “We have regular catch-ups with our startup companies, so we’re aware of all the issues and things that need to be done. Their quantity and regularity vary on the stage of the company, and what it’s going through. Let’s have an example: one of the European companies is interested in understanding the value-based care market in the US. We know someone who’s in our network and is our venture partner with deep experience in selling value-based care propositions in the US. We introduce them, set up a call and discuss what is needed, give advice and support.”

A major source of Nina Capital’s deal flow is its outreach. It comes from what is called the Nina Platform: “That could be interns who are doing a deep research project on a particular need or market and then just find interesting companies out of that research. It could be our venture partners: they’re deeply embedded in the ecosystem and see companies all the time. A lot of our deal flow is referrals from that extended network who see those companies and are often advisors to many. Our second one is inbounds. On our website, we have a form that you can fill in and submit. We aim to get back to you with an answer within two weeks. Many of our founders are networked very well. We get a lot of startups going through our current portfolio and asking for warm introductions through that.

We were formed in 2019, so nobody knew us, and we had to have this very proactive approach. The growth of inbounds, when we have more visibility, is much higher.”

Due diligence process — what does it consist of at Nina? “When we think about the team, which is a very important part of our due diligence, it’s not just the core team that we look at. They have to be very strong and complementary to each other. We also look at the extended team: have they been able to attract very senior and expert-level people? If they’re able to convince people who are very busy and probably have lots of offers to come and join another startup, and manage to bring them on board as advisors, that’s a good indication: the company is doing something interesting, and the team is capable of selling their vision. It’s a good indication they will be able to recruit key talent in the future as well as investors, so that’s a very important aspect of our due diligence.
VCs have an obligation to their investors, we promise a certain return level to them. For every company we invest in we would like to see that if everything goes well and they develop this product, the upside potential for it leads to a fund returner for us. That will happen to two or three companies out of all our portfolios, but we need to see that there is a chance for that to happen. The base case is a decent return, a 10x multiple on our investment throughout our investment period, for example. If all of that aligns, we’ll invest.”

Then Sebastian tells us a bit about how VC gets its money back: “There are three sorts of exit strategies: a traditional M&A acquisition, IPO, and secondaries. Typically, we often look for the first two variants, that’s how we want to exit. Secondaries can become interesting once we near the end of our traditional fund period of 10 years. We also can add two years past that, so it’s a 10+1+1 model. If we’re nearing year 10 and we need to exit — that’s when you start looking at secondary exits, which is perfectly valid. Many funds out of there are focused on secondary exits; for now, we don’t need them. But it’s a viable route to exit a company, which we’ll look at if and when the time comes.”

Traditionally, at the end of the interview, our guest gave some recommendations for startup founders in digital health, and this time we have a bit of very detailed advice for you: “Fundraising is a long-term process. All you want to do is to be focused on the business, but there are some things, which will make fundraising much smoother.

• The biggest one is nurturing relationships with VCs that could invest in you in the future. This is something we do as well as a fund to our investors. Have either a monthly or a quarterly email with some key updates and highlights on the progress that you’ve made — and send it out to some pre-qualified investors. Build a special list and keep all of them informed, so they will see what you’re capable of. And when it’s time to go out and fundraise, they will be already familiar with you: you will not have to start from scratch, because you’ve already done a big part of your work.

• Don’t neglect the fundraising aspect until the last minute. Give yourself six to nine months before you run out of cash. It is a number game: you need to reach out to a hundred-plus VCs and investors to build the round that you’re looking for. That’s not just reaching out to any investor; do the work by pre-qualifying them.

• Think carefully before reaching out to a VC that has invested in your competitor, but there could be a kind of synergy there.

• Do some due diligence and pre-qualify these investors to target the ones that will have the highest potential for success. Use warm introductions where you can: find another founder or portfolio company in the fund to have some relationships with and ask them to introduce you. Founder referrals are extremely, highly valued by VCs because it’s almost pre-qualifying.

If you do all of that, it should make the fundraising process a bit smoother, but it’s not easy. If you look at us as a VC, I don’t know how many investors we’ve reached out to, but it’s well over 500-600 in our database, and most of them say “no.” What you go through, we also go through.”

Our previous episode was with Aline Noizet: What to Expect in Digital Health in 2023?