Healthcare 201 Workshop– Takeaways

Healthcare 201 Workshop– Takeaways
7/20/17 @ OHSU

 

What: Healthcare Investing – 201: A deep dive into the promise & pitfalls of investing in medtech (medical devices & healthcare IT)

 

Why:

-        Understand the unique characteristics of investing in medical devices & healthcare IT

-        What makes medtech an attractive investment, or not?

-        What pitfalls can we avoid as an early-stage VC?

 

Who: Expert panelists:

-        Alex Suh, California Technology Ventures

-        Thomas Kluz, Providence Ventures

 

Takeaways:

 

We explored the unique dynamics of the medtech market (healthcare IT & medical devices), the ins and outs of investing in medtech, and guidance for OAF as a locally focused, early stage investor.  A pair of healthcare-focused VCs led the conversation: Alex Suh with California Technology Ventures and Thomas Kluz with Providence Ventures.

 

Key success factors and lessons learned:

  

Medical Device Investing Guidance

1.     IP drives exit value – invest in startups with unique IP that can challenge the status quo.

2.     Improved outcomes AND cost savings - Hospital systems and payers more likely to adopt devices that show improved patient outcomes and reduced costs, backed up with empirical data. 

3.     Avoid medical devices subject to FDA pre-market approvals (PMA, usually Class III, high risk devices, 2-3 year approval process).  510K exempt or cleared devices are OK (6-12 mo FDA process).

4.     Have sufficient capital to continue to invest at key milestones and during lawsuits. Consider tranched investments. The time and capital to create an MVP can be significant.  Because multiple decision-makers (regulators, insurance, providers, patients), the build-measure-learn-iterate cycle can take years with MedTech vs. days or hours with consumer/enterprise software. 

  1. Partner with funds or strategics who work regularly with the FDA and key industry partners, and who have structured their funds for long development, sales, and deployment cycles (eg. 20-year fund horizons and/or evergreen funds)
  2. Be prepared to consider relocating to regions with the specialized resources and expertise to develop and bring a product to market – e.g., Seattle or California.

 

Healthcare IT Investing Guidance

  1. Cost savings, revenue, & distribution (usage) will drive exit value - invest in technology with significant cost reduction to entire system (payers, providers, and patients). 
  2. Longer sales, deployment, and adoption cycles (e.g., 2-3 years for healthcare vs 6-18 months for enterprise SW) 
  3. Location less important, especially with right industry connections.  Oregon as good a location as any for healthcare IT startups.