Behind the VC Curtain: Investors Talk About Post-COVID Trends and the ‘New’ Healthcare Tech

By Allison Proffitt

November 19, 2020 | Biotech is now seeing a risk paradigm shift, observed Jessica Federer. “It used to be for healthcare companies and pharma companies, it was really risky to try a digital technology. They’d bring together big panels and committees and deliberate. It would take a year, or two years to decide to do something digital. Now with COVID switching the risk paradigm, it’s too risky not to do something digital.”

Federer, a venture affiliate partner at Boston Millennia Partners currently serving as the US Managing Director for Huma, a global digital health company, was speaking on a panel last month during the Bio-IT World Conference & Expo Virtual. Annastasiah Mhaka, founder of  Mawambo, and co-founder and former president of the Alliance for AI in Healthcare (AAIH), led the group discussion of VC and new tech companies to talk about how technology gets evaluated, how money gets invested, and what catches a VC’s eye.

At Philips Ventures, Sean Cheng, senior investment manager, explained that there is a corporate-level fund for investments in technologies they believe are “around the corner” or “down the road” five years or so. “We see that seed stage to Series A as a fairly important point and we take it upon ourselves to bridge that as much as we can—but it’s a very, very deep valley,” he said. “We bring in a different set of infrastructure and capabilities to help them.”

But more common, he explained, is business unit-sponsored investments that are generally more strategic, short-term and vary quite a bit. Companies at these later stages generally have some market traction already and have a narrowed focus. “It’s no longer a hammer looking for a nail, but they have the nails defined,” he said. “Those make it a little bit easier to help to scale up and reduce the risk.”  

Cheng predicted a coming shift toward later-stage deals compared to pre-COVID investments. It’s a move that he acknowledged will deepen the valley between seed stage companies and commercial viability.  

Avantika Daing, Managing Director and Partner at Plum Alley Investments, agreed that her company often focuses on Series A investments to, “de-risk our investment thesis.” But an even greater guiding principle, Daing said is TASM: technologies addressing situational markets.

“We didn’t anticipate what COVID was at Plum Alley, but we always had a check box as we evaluate a company… for TASM.” Are these technologies that can withstand a recession? Are these technologies that could solve for a big pandemic? Which companies, products, technologies, founders are prepped to address situational markets? These questions have, “been a key focus for us from the very get-go,” Daing said. 

Not everyone is looking later stage. Navid Alipour, co-founder and managing partner at Analytics Ventures, has created a venture studio model specifically to invest in new AI companies—complete with his own independent AI lab and scientists to validate new technologies.

VC is an art, Alipour believes, and he is calling specifically for the very earliest idea generators. “We’re putting our hands up: You’ve never started a company before? Come to us. You’ve got domain expertise? Come to us. You can’t risk quitting your job to do this on your own? Come to us.” It’s a group of founders he wants to support.

All About the Data

Michael Langer, Head of Search, Evaluation and In-licensing for all new technology and products at Pear Therapeutics, represented a different view. “What we’re looking for at the end of the day will come down to product and the data,” he said. “One of the things that’s of gravest importance to Pear is clinical validation and having very, very mature datasets.” That narrows the field; there are only so many young companies or academic groups who have done randomized control trials or can otherwise prove improved efficacy, he said.

While true, this has created a unique environment around data. All of these new, small companies are creating more data silos, Cheng observed, and management consulting—rewarded for connecting nodes, not fostering interoperability—isn’t helping.

Businesses today can over-value their data, Mhaka agreed. “There’s a sense that a lot of companies with small, tiny pieces of data… feel like they have their hands on gold!” she said. 

That perspective, Federer argued, is a mark of the “old” healthcare tech players. “We‘re not just trying to hoard data in the new healthcare world,” Federer said. “We’re trying to say, it doesn’t matter who had the data. Let’s find it. Let’s validate it. Let’s make it meaningful and find the right tools and algorithms so that data can help us do remote monitoring, can help us do remote care, can help us find medicines for you quicker and faster.” 

The secret sauce, Federer said, is in application. “The companies that are going to succeed in having a high valuation of the data are not the ones that have a big collection, but the ones who have a very usable way of approaching data.” 

As a company built on that premise, Seqster certainly classifies itself as a new healthcare player. Ardy Arianpour, Seqster’s CEO and co-founder, said companies are creating silos without even realizing it. “When you empower people to truly own and control and be able to share their data, then that’s when the dynamic completely changes.” Seqster does that, Arianpour says, decentralizing data and giving individuals the tools they need to explore and make use of their own data.

Mhaka pointed out that the roles of consumer and the patient are converging, raising the real possibility of monetizing your own healthcare data. 

“There’s definitely an invisible force pushing on the fact that people don’t want to share their data unless they’re getting something in return,” Arianpour agreed. For digital consumer services—Facebook and Google, for example—users share their data in exchange for use of the platform, and the platforms, in turn, get to sell ads. But with healthcare data the tradeoffs and rewards are more complex, he said. “Monetization is a whole different animal. That isn’t coming before the data silos being broken down.”

The People Question 

The data aren’t the only crucial company asset though. “When we look at a seed fund, probably the number one thing you’re looking at is, how much do we believe in this founder,” Langer explained.

The right team is equally important, Daing said. “At Plum Alley… it starts with the smart financial operators providing outsized returns,” she explained. You need a quantifiable system for identifying the founders, companies, patents, or products that will lead to outsized returns. The data are clear, Daing said: crucial to a system for outsized returns are diverse company founders who are leading and supporting diverse teams.