Top investors in digital health and what they are looking for in founders

Lots of startupers feel apprehension towards their future due to pandemic and the impact it may cause on funding. In digital health, however, there’s no decline (yet) in funding numbers: on the contrary, the most-funded early-stage ventures of 2020 Q1 belonged to the industry. As a startup hub with a heavy focus on digital health, we wanted to help our clients, both current and potential, by listing top investors in the field. We cross-referenced our data with Crunchbase’s database of firms that have most exits in digital health and its branches like medtech, digital therapeutic, and so on, and did a bit of research on the subject on what exactly these firms are saying about entrepreneurship in the industry, what are they looking for in the founders for their portfolio.

Let’s start with New Enterprise Associates (NEA)

NEA is one of the largest venture capital firms, an old giant. It was founded in 1979, and, since then, was continuously investing in technology - in particular, in healthcare. One of the interesting features of this firm is stability in terms of choosing partners -- instead of hiring outsiders, NEA promotes experienced people from within a company to GPs.

In terms of healthcare investments, NEA is looking for businesses and organizations that improve the quality of services, reduce costs, and increase accessibility in healthcare, efficiently transforming healthcare into the service industry. Like many investors who work with healthcare, they understand it’s incredibly challenging to change the industry, but they believe the challenge is quite motivating if you’ll think about what you can accomplish.

Among popular healthcare investments in NEA, there’s innovative tech like Personal Genome Diagnostics, founded by researchers from John Hopkins, one of the largest private insurers Brighthealth. Their latest early-stage investments are Affina Therapeutics who design platforms for rationally designed gene therapies, and Pager who offers virtual care and services. We recommend checking them out.

Kleiner Perkins

Kleiner Perkins is a venture fund for early-stage startups, and, according to them, they’re popular among founders due to their technical talent. Kleiner focuses on the founders with bold ideas that disrupt an industry and lead them from seed to IPO. At the beginning of the year, Kleiner netted $700M for its Fund 19. It’s said to be focused, among others, on healthcare companies, — great news for startupers in the field, as it means there will be experts and mentors, familiarized with the specifics and challenges of it.

One of their partners, Wen H. Hsieh, recently shared his five criteria on the good venture opportunity, among which:

1. Existing of a market for the technology;
2. Founders having a business model or a technology that is differentiated enough to create an entry-barrier for competitors;
3. Founders having a sustainable business model that fits into market they want to enter;
4. Investments will generate returns (thanks, cap.)

Fifth criteria is, of course, personal preferences: founders’ personality, values, and ambitions - as well as those of their team - have an enormous impact on investors’ decisions. That’s why we recommend pitching investors who have views and values, similar to your company’s. In general, all of these requirements are pretty common for investors, so you can pretty much lay out the foundation for your pitch on them.

Among digital health startups, Kleiner invested in Modern Health - a mental health platform that offers digital courses, meditation, and teletherapy, and Viz.ai, a startup that helps doctors detect early signs of time-sensitive medical conditions, like strokes, via deep learning algorithms.

Venrock

One of Venrock’s investors, Bryan Roberts, was included in the 19th annual Forbes Midas List (list of top venture capitalists) as a newcomer. One of Roberts' most notable deals as a partner of Venrock is 10X Genomics: a startup that develops DNA sequencing technologies and products that help develop a deeper understanding of the human genome. In his interview for Midas List, Roberts says he prefers investing in CEO first-timers because he thinks they’re most likely to plan for the long-term. Camille Samuels, who is also Venrock’s partner, explains that her company's approach is to avoid the rule of thumb and invest in areas where great founders try to meet unmet needs. In general, partners of the firm wish to “achieve the impossible” with their funding, - according to their website.

New investments of Venrock are mostly focused on biopharmaceutical startups like Amunix and Pharvaris, bioscience ventures like Element Biosciences who develop new genetic tools, and startups like Biolux Research: focused on issues in a particular branch of healthcare — in this case, on orthodontic products development.

In the post about IPOs of their two companies: Cloudflare and 10x, Roberts warns new startups — which really hits home in a current panic-in-crisis situation — to not fall into trap of a false narrative, telling that startup success is a result of a formula “great idea+founder+possibly, a garage”, and if you have these, you’ll have an enormous amount of funding. In reality, founders, both in the early stages of development and later, have to be ready to make an enormous amount of strategic and executive effort. On a formative stage of a startup, it’s important to be ready to see and make a lot of good choices and very rapidly fix bad ones.

Bessemer Venture Partner

Bessemer Venture Partner is another old, very old venture capital firm. It was founded in 1911, and surely since then, they’ve done plenty (205 exits, 150 IPO, among which Allscripts and Bright Health).

They position themselves as vertical software investors (software that is developed specifically for the needs of the industry it’s aiming for - as opposed to horizontal software, useful for quite a spectrum of industries - like Microsoft Word), so basically if you want to build software for healthcare, you fit.

In their advice on building a successful vertical software for the industry — and getting their funds, — they urge founders to make sure they can build a $100M ARR business on the deep domain expertise in chosen verticals. That’s why it’s always nice to have a healthcare professional or few on your C-board when planning your product/getting ready to talk to any investor.

At BVP, VCs are often staying with startups from seed to late stages of growth. The firm’s also doing anti-portfolio - to honor companies they’ve missed or declined and describing the situation where they decided not to / or missed the opportunity to do it. The list removes the areola of majestic glow from, possibly, the oldest VC firm in America. One of the firm’s partners does a podcast called A Healthy Dose - and lately, they started releasing episodes dedicated to starting/surviving the COVID-19 crisis if you’re a startup. If you are wondering about your course of action in these troubling times [exasperated sigh], you may want to check it.

We also recommend checking the latest early-stage companies BVP’s invested in - for instance, Nym - a startup that develops medical coding technology to simplify revenue cycle management, and Centivo - a health plan administrator platform that saves insurance costs for employers and employees.

Threshold

Threshold seems to be one the youngest firms of all mentioned here, but it’s actually transformed from Draper Fisher Jurvetson (DFJ), another large and old investment organization. They have 11 exits from startups in the healthcare industry, and Livongo, which went public last year, is among them.

It’s another early-stage firm that leads founders from the beginning. One of the key concept firm’s paying attention to is a “threshold moment” - the moment when technology and market forces are getting closer, creating an environment for innovations. Remember we mentioned digital health fundraising doesn't slow down due to the pandemic? Virtual care platforms, telemedicine, and remote medtech solutions are quite possibly living through their threshold moment right now: the market needs the adoption desperately and the environment for innovations has already been developed.

Lately, Threshold invested in

Vital EHR - a digital platform for the emergency department, tackling the issue of waiting time in this hospital’s department and coordinating the workflow of medical professionals via AI. Among their latest Series A investments, there is XHealth, that helps doctors prescribe and manage digital health apps and content, using them to deliver better outcomes. They also help hospitals rapidly adopt digital tools, if necessary.

Heidi Roizen, one of the partners in the firm, described their process of investments like this: Threshold gets excited about a niche and meets startups who try to tackle issues there. Then, they pick one they believe has both the best team and best technology, invest to own about 20% of the company, and become a proper partner. That’s one of the reasons Threshold doesn't take competitive startups: they’re trying to fully dedicate themselves to helping that one representative of the chosen niche.

Norwest Venture Partners

Norwest Venture Partners or Norwest is another old venture firm, and, despite the fact it focuses heavily on startups in late stages, there are some investments in young healthcare ventures going on as well.

The latest in Series A are Robin Healthcare - a startup that develops AI-driven scribing technology and Lumos Labs, a research company with a domain in neuroscience. Apostrophe, another startup that gained funding in seed two years ago is a startup that offers an intelligent digital solution for self-insured plan sponsors. On the other hand, the largest NVP’s investments are Health Catalyst (that recently went public), Omada Health (that does behavioral science), and, among popular ones, Talkspace (online therapy startup). NVP, as the previous large firms, has quite a range of portfolio diversification.

Of course, they offer their business expertise and resources to their portfolio companies - which, according to the latter, are very helpful - especially if NVP becomes early supporters. As for healthcare startups they want to invest in this year, they say they wish to work with companies that break the status quo, improve outcomes, reduce costs, — do all good things. Check out their milestones to learn the history of their investments and exits.

Techammer

Techhammer was founded in 2007, and they’re angel investors who invest in solving “meaningful problems” and improving the well-being of Americans in the fields of data science and digital health. That's the first highly-specific, healthcare-oriented investors in our list of firms. The firm is founded by Halle Tecco (who’s also founded Rock Health we’ll be talking about later) and Jeff Jammerbacher (who worked at Facebook and founded Cloudera). One of the latest investments they’ve made is in 54Gene, a biotech startup that is aimed at improving Nigeria’s capacity to produce COVID-19 tests, and it’s a great example to learn by. 54Gene has gained funds for their first seed round seven months after the launch (which is, let us tell you, very quick) and put Africa more firmly on the landscape of global digital healthcare. You might wanna know how they’ve done it. Another Techammer healthcare investments are Doctor-on-Demand - a popular telehealth company - and Cityblock health - a platform that enables care delivery to underserved people (SDOH-oriented initiative).

If you have no expertise in healthcare and are unfamiliar with its specifics, it might be a good idea to choose small, but healthcare-centric investors and/or incubators. Partnering with them, you’ll receive guidance on how to insert your startup in complex business models of different parties, included in the care process, and will be surrounded by people who walked your path earlier - or are doing it right now. Healthcare startupers require refusal from the “move fast, break things'' approach that is so common in tech spaces, so it might more calm for you in healthcare-centered a.

Define Ventures

Define Ventures was recently launched by Lynne Chou O’Keefe, a former partner in Klaine and board member in Livongo. Chou O’Keefe, as the angels in Techammer, decided to focus on healthcare, exclusively. With quite an experience in the industry, which has come from Livongo and healthcare giant Abbott where she worked as a global marketing director, she focused investment efforts of Define Ventures on impactful, targeted solutions for specific issues in areas like chronic disease management, mental health, and connectivity between different branches of healthcare.

Define Ventures has already invested in Lightship - a startup that connects patients to clinical trials, HIMS direct-to-customer men’s health company, and so on.

Lux Capital

Lux Capital are VCs who are interested in startups who break conventions in “futuristic” tech like flying robots and holograms; digital health and biotech are fields where these technologies can be found.

Lux is backing RDMD - a company that provides solutions for research of rare diseases & connecting people to drug studies - they had a Series A this March. They’re also behind Rivet - a SaaS for transparency of costs in healthcare. There are some heavy, interesting biotech organizations in a portfolio - ergo “emerging science and tech” orientation - so check them out as well. The firm describes its approach to investments as “looking where no one else looks” and empowering bold, brave, and breakthrough with funds and expertise.

They also invest in hardware companies with the deep tech behind them, like 3D printing and drones - both technologies are already applied in healthcare, so we would recommend going to Lux if you have a clear, proved concept of something complicated and related to hardware. Due to Lux’s focus on futuristic deep tech, they’re ready for long sales cycles among the complex infrastructures, regulations, and supply chain disruptions.

One of Lux’s partners, Deena Shakir, recommends founders to study their competitors, warning them about the danger of blacklisting; and to focus on packaging the pitch - which means, telling a story about your product, knowing a vision for it, and knowing all bricks that are going to complete it perfectly. To prepare for the pitch, it might be a good idea to research Lux’s Medium.

Rock Health

We love Rock Health because to us they’re a source of digital healthcare-centric numbers and research about the state of investing. Founded by Helle Tecco, they position themselves as “the first fund dedicated to digital health” - and, quite possibly, that’s true. Being a fund for early-stage ventures for startups who’ll contribute to smooth healthcare transformation, they invested in quite a lot of companies since 2011. Among them, lots of startups focused on a specific area of health (like Vivante Health for digestive health), telehealth startups and startups for cost-efficiency, communication and connectivity (like Bodyport, a virtual clinic), analytical platforms (like InsightRX), and so on.

Rock Health is a non-profit venture fund, and that gives them the freedom to collaborate with healthcare providers (hospitals like Mayo Clinic and UCSF), health insurers, and other participants of the digital health industry. Applicants for funding participate in five-months long incubators and partner with Rock Health’s partners like Deloitte and Sanofi. They explain complex aspects of working amidst the digital health industry - like, for instance, FDA regulations, and, in general, largely support innovators with its industry-specific focus.

Health tech capital

Anne DeGuest, founder of HealthTech Capital and Medstart, formulated the idea of an ecosystem for different sides of digital health deals before the term itself was coined, in 2010. In the beginning, the standard practice was to create some device or software and give them to doctors to figure out how that should work in the system — and the concept wasn’t ideal. When, in 2012, digital health was discovered by investors, startupers already had lots of difficulties fighting long sales cycles and lack of willingness to adopt new things. DeGuest created an angel investment firm with a strong mentorship, where mentors included physicians, payers, patients, and at least 30% of people from large corporations. Startupers in HealthTech capital have a chance to work alongside big companies from the beginning of their product development, using an opportunity to connect their product very tightly to partner’s operational needs.

In her interview, DeGuest explained that digital health startups have such high rounds in the early stage because for investors it’s a matter of getting on the train before it leaves. The extreme growth of funding on seed and Series A (that’s, like, 50% of all digital health investment) and the slow growth of revenue leads companies to a situation when its valuation is growing on series B, but their revenue isn’t. That happens due to long selling cycles, and it’s often a surprise for investors who are not experts in the industry and for digital health startupers who have no industry-wise mentorship.

To tackle the issue, startupers, according to an investor, must be focused not on how much money they can get in the next round, but on the revenue they’re getting with your product. Your value proposition needs to look like a new, cost-effective (and clinically working, if the specifics of products require that) business model, and to create it, you must consider - from the beginning - how you can create ROI for the chosen stakeholder in healthcare. For instance, how a hospital you’ve proposed your technology can retain its costs in terms of single patient stay. Considering it is 6,1 days of stay  plus 30 days for readmission risk, you'll be looking at modelling returns on investments - e.g., saving, - for 37-60 days time frame. Sounds intimidating? It gets much more complicated if you want your product to be adopted by insurers, employers, and patients: in each case, the business models will have different details, and different timeframes used for calculating ROI.

Here are HTC’s Presentation/Submission guidelines. They seek, mostly, seed and series A startups. To see what companies they invest in, check out S2 Genomic (raw tissue genomic analysis), and MyHealthTeams (social platform for people with chronic pains).

Desert Angels

Desert Angels is a non-profit for investors who want to fund early-stage startups “the next generation of big solutions” who operate in different industries, healthcare included. It’s something of a club for angel investors and angel groups. You can check out their pre-seeder registration right here (application for first-timer startupers in the community), so you can understand what’s required to get funded. In general, Desert Angels invest in early-stage companies with targeted 10x returns and pretty standard requirements of knowing your market and competitors, having a clear exit strategy, and having a unique value proposition. They also promise to consider investing regardless of the location, so if you’re not in the USA, you may consider them.

The firm was founded in 2000, and, according to their website, since then they’ve invested over $60M in more than 132 companies. Among their investments, there are Aural Analytics- a speech recognition platform that detects early signs of neuro diseases using speech as a biomarker, and Regulonix Holding, that develops non-opioid medication for chronic pain.

iSELECT FUND

iSelectFund, according to Crunchbase, invested in 45 companies that target “critical global issues, have large markets and financially attractive business models. It’s an “impact investment” fund and, as their CEO, Carter Williams wrote, it’s mostly helping startups and investors outside of Silicon Valley to make an impact.

Williams made it his goal to specifically move away from the center of American funding. Other industries that are not represented in SV just as well also need capital, as it has the ability to change, grow, and improve the industry where it’s placed. So iSelectFund is focused on regional solutions, seeking immediate application of startup’s value -- immediate impact.

Most of their healthcare-related investments are biotech and genetics solutions, but if you’re building other platforms, targeted on improving human health, look into them. Among their investments are GeneMatters, a digital platform for genetic counseling, and Nix, a wearable patch that monitors hydration IRL without the need for a power source.

Israel’s investing firms

As Israel is a country where lots of our clients are located, we decided to give Israeli investors a shout out as well.

Pitango

Invested in exceptional founding teams since 1993. Among their major health tech portfolio companies are EarlySense (patient monitoring solution) and Click Diagnostic (technology to make biology testing more democratic). One of their early-stage ventures, CyberMDX - security platform for medical devices that ensures the stability of device operations, patient safety, and privacy preventively - recently gained funds in series B.

Pitango regularly organizes and funds startup competitions (with investment prizes) like Trifecta at different conferences, both in Israel and America that are open for early-stage ventures. They invest in companies on every stage and invite newcomers to come to them as quickly as possible - no matter what their current method of getting money is. Recently, they raised $250M for a new growth fund.

Vertex

Another investment firm founded in the 90s - and one of the most active VCs across Israel. Among Vertex’s Network firms, there is one, dedicated to healthcare, specifically — Vertex Ventures HC, but the “central” Vertex also invests in digital health startups, so theoretically, you can apply to both.

Vertex operates across all stages of startups’ software development. Recently, they’ve invested in Series A of Datos Health, an automated remote care platform that rapidly responds to pandemic needs for remote solutions. As Vertex’s network firms are active in Asia and USA, founders in each one of them are presented with an immense opportunity to collaborate with lots of professionals and experts in every given industry.

Chua Kee Lock, Group President and CEO of the Holding, who, by the way, worked at Biosensor International before accepting the position, said that traits he’s looking for in founders is conviction, resilience, and plan to work hard for years before they become successful. “[Founders] also must be able to accept that they are not perfect. They need to have people with them” and have an open mind: one of the most vital traits for entrepreneurs is the ability to swiftly adapt to changes and leave the comfortable rigidity of firm beliefs behind.

Olive Tree Ventures

Olive Tree is the youngest venture firm among our Israel selection - they have been founded in 2015, and, unlike the others, they’re specifically digital health-oriented and focused primarily on Round A+ startups. Recently, they’ve led the venture round for TytoCare - mHealth platform for physical self-exams - of lungs, heart, throat, and so on; at-home medkit included. Other companies in their portfolio are focused on separate branches of healthcare (Emedgene - a platform for gastroenterologists), on medical hardware (Via Surgical), and so on. Like many investors in our list, Olive Tree combines funds with mentorships and a multinational network of partners for entrepreneurs to meet.

We hope you’ve found our list useful. If you’re interested in technical partners who’ll help you figure out a fitting business model and help you build MVP before going to investors, contact us. If you know investors who are also doing great in digital health - but were not included in our list - don’t hesitate to write us a word as well.