Investors are pouring into the health tech sector, with venture funding roughly doubling in 2020. That’s good for individual companies, but when valuations begin to depart from reality, it takes discerning investors to pick winners in the space.
“It wasn’t always such a clear return profile, and there was a lot of skepticism,” Deena Shakir, a partner at Lux Capital, said Wednesday at the STAT Health Tech Summit. “But now everyone’s jumping on the train.”
That means the world’s private equity magnates and hedge fund managers, once focused only on late-stage investments, are getting involved earlier and earlier in the funding cycle. And they’re suddenly competing with the likes of Oak HC/FT, which can lead to some “eye-popping” valuations, said Annie Lamont, co-founder and managing partner of the venture firm Oak HC/FT.
There’s plenty of opportunity to go around, Shakir said, but what differentiates good investments from vaporware is a clear case for how a given app, device, or service can make a difference for patients, physicians, and providers.
“For someone who’s just dipping their toes in health care, it’s a lesson they have to maybe learn the hard way,” Shakir said. “It’s not always just about the idea or some patented IP or a molecule. The business model matters. The engagement with these different stakeholders matter. Understanding, ultimately, who’s paying and how they’re going to pay matters.”
Despite the rush of venture funding into the sector — $14 billion last year, according to Deloitte — there’s still value to be created in the startup scene, the investors said. Lamont said there’s huge potential for technologies that can address cost and risk. The majority of health costs stem from primary care, Lamont said, creating a massive need for tools that can help those physicians make decisions that both limit patients’ risk and avoid the extraneous costs of unnecessary procedures.
“That sort of knowledge, and incenting primary care docs to have the information to do the right thing, that dramatically changes the cost of care, and improves care,” she said.
Shakir has been looking closely at the women’s health space, particularly efforts focused on contraception, fertility, and menopause. The field has been historically under-funded because of “a myopic view of what the market looks like,” Shakir said, which creates opportunities for investors who understand the needs of patients and providers.
“Women control 80% of the dollars in health care, and it’s 50% of the population, and yet somehow it’s still seen by some as a niche market, which just blows my mind,” she said.