You’ve finally done it! You spent what’s felt like several lifetimes working on your innovative product and poured your blood sweat and tears into this, but you did it. You’ve just completed all of the designs and plans for your new startup or a new product. Unfortunately, that’s not the end. Now it’s time to figure out how to not only get others on board with your vision, but to fund the rest of the marketing, sales, and support effort as well.
But don’t get too stressed out! We are here to help you. There are two important things to keep in mind when working to acquire funding: (1) what factors are influencing funding for healthcare startups and innovation right now and (2) how to navigate long buying cycles to successfully bring your product to market.
To get you the best advice, we reached out to our brilliant Healthcare IT Today Community to share their insights on these two points. The following is what they had to share.
Sally Frank, WW Lead – Health & Life Sciences| Microsoft for Startups at Microsoft
When building the a solution and company from the ground up, considering the buying cycle and mapping it out is as important as building the solution. Specifically, identifying advisors, clinicians or staff that can mimic the personas you plan to target, enables you to get feedback on the product at key milestones, increasing the likelihood that your product and go-to-market strategy will resonate with prospective customers.
Additionally, understanding if your solution can be sold, prior to full regulatory approval, is another way to reduce the sales process, just as getting a 510K approval is typically faster than a de novo designation. Lastly, regardless of whether or not your solution requires FDA approval, ensuring that it is easy to buy, is critical. Have your sales model established and be sure to provide a “wedge offer” or easy way for prospective buyers to test the solution on a small scale, before investing further.
Eric Demers, CEO at Madaket Health
What factors are influencing funding for healthcare startups and innovation? There are a few things that investors consider. First, is your solution unique or differentiated enough compared to what’s in the industry? Second, is your solution solving a problem where money is being funded (are people willing to pay for it?)? While plenty of companies want to bring innovative solutions to the market, they might not get funding if no one pays for them. The third is industry trends – where is the money flowing in healthcare? Does this company focus on an area that aligns with what’s trending? Is the service or product something an analyst would be tracking? Lastly are regulatory trends. Is the startup addressing a problem that has been flagged from a regulatory perspective?
Dan Martin, Executive Vice President, Healthcare at PAN Communications
Digital health and HIT funding has shifted significantly in the last couple of years. According to Rock Health, in 2021 we saw a whopping $29.1B in funding, which was essentially cut in half to $15.3B in 2022. Q1 of 2023 saw $3.4B in funding, which if repeated quarterly would come in a couple billion under last year. Why does this matter? We’re not seeing VCs throw huge funding rounds at smaller healthcare startups like we did years ago. This funding is becoming harder to come by – and capital is also increasingly expensive for these smaller scale companies with rising interest rates. As a result, I anticipate that we’ll see smaller funding rounds throughout the year.
As a result, startups and smaller healthcare brands are going to have to better articulate their value prop and stand out in the market. This has – of course – always been the case, but now with an even finer point if companies are looking to raise capital to fuel their growth. What tangible business results can you tie to your solutions? How brands marketed themselves in the past isn’t going to cut it anymore and they will need to be able to demonstrate what makes them different, special and standout from the noise. And those that do secure funding this year will need to think critically about how they’re running the company operationally, in light of the smaller rounds. The big questions around funding this year are ‘how can you explain why you deserve this funding, and if you get it, how can you use it to truly fuel that next stage of growth?’
Graham Gardner, CEO at Kyruus
The funding requirements to stand up scale in healthcare are daunting, especially in this financing environment. At the same time, customers are watching their budgets and looking for platforms—not point solutions—to solve their needs. Smart entrepreneurs and investors are exploring opportunities to combine with other assets to enrich their offering and be part of a broader go-forward story.
Sunny Kumar, MD, Partner at GSR Ventures
In Q1 2023, we saw a quarterly increase in US digital health funding to $3.4B from $2.7B in Q4. However, this marks a sharp decline from the $6.0B in Q1 2022 as founders and investors find themselves in the midst of macroeconomic headwinds, a valuation reset, business model realignment, turbulent public markets, as well as the promise of new technologies including generative AI.
In order to thrive in this environment, the two most important considerations that startups must account for are: 1) does their solution generate near-term, measurable, and significant ROI (return on investment) to their customer? Absent this, customers – whether health systems, pharma, or payors – are slow to purchase, elongating sales cycles. And 2) has the company aligned incentives across key stakeholders? By addressing incentive challenges up front, startups reduce the risk of blockers to adoption and maximize the chance of disrupting traditional models of care delivery.
Alex Rothberg, Founder & CTO at Intus Care
In my opinion, product-led growth is the foundation of any successful business. As the CTO, my focus has been on building a product that solves a real problem for real customers and is scalable. It’s fine to start with things that don’t scale, and some of the best innovations come from that place, but there needs to be clear visibility to scale. Second, it is critical to balance a close customer feedback loop with the broader long-term vision and convictions. Sometimes you need to go heads down and build the car and sometimes the customer just needs a faster horse.
Beyond the product, building a successful business is about building the right team. As a founder and leader of a health technology organization, it’s my responsibility to ensure we’re hiring the right people who are passionate about our mission, are exceptional contributors, and who share our values. At the end of the day, a company is a group of people that create more than the mere sum of their parts.
Jack Stockert, Managing Director at Health2047
Healthcare is a space of entrenched incumbents, significant regulatory hurdles, and other limitations to scaling businesses. It is harder to move fast and break things in our industry. Health tech has seen a recent public market pullback, in which high-flying and well-funded companies have gone under because of outsized valuations and expectations, with limited pathways out. To succeed, companies must play by the rules, support the leaders setting policies and regulations, and work to evolve them thoughtfully for the betterment of patients and care providers. That doesn’t mean being self-serving, but rather driving change that can lead to better endpoints: improved outcomes, lower costs, better care.
Frederico Ferreira Braga, Head of Digital at Debiopharm
The most successful startups are very good at predicting their sales cycles. This is particularly important in the current environment where investors are particularly averse to surprises. From my experience, most companies have a very good intuitive understanding of their sales cycles, but the following pitfalls prevent them from executing well: 1. Lack of focus / selection in the opportunities they invest time on trying to win. 2. Wish full thinking of sales cycles and buying behaviors. 3. No repeatable sales process. It is good to spend more time in the sales process for the first 5 customers, but if one cannot industrialize it from there, it is inevitably going to reflect on the overall sales cycle. The longer the sales cycle, the harder it is to predict.
Dr. Michael Rivers, Sr. Medical Director of Ophthalmology at ModMed
For private practices, the tech they use links directly to business success, which enables them to pay back loans or show value to investors by making practices more profitable. Careful investments in the right EHR, practice management software, and digital patient engagement tools make the business of medicine even easier, which is critical for most “doctor-preneurs” who consider themselves a physician first and business person second.
So much to think about here and so helpful as well! Thank you to everyone that took the time to share a quote with us and to all of you for taking the time to read this article! If you have anything you would like to add to this conversation, we would love to read all about it in our comment section down below or on social media.
