In June, CareAcademy, a Boston-based home care and home health workforce platform, closed series A funding of $9.5 million that was led by the Impact America Fund, a Black woman-led impact venture capital firm in the U.S. that invests with a racial equity lens. CareAcademy is founded by Helen Adeosun, who serves as CEO and is a Black female entrepreneur and Madhuri Reddy, a South Asian who is an instructor of medicine at Harvard Medical School.
Some might have seen it as an even-riskier-than-usual investment — given the economic turmoil around the pandemic. But venture investment in health care companies broke records in 2020 and is expected to continue strong into early 2021. Among the areas attracting interest: mental health, AI-powered diagnostics, and care delivered outside hospital settings. Science may have been under attack politically — but the dollars are flowing along with evidence of what works.
“There are lots of new concepts in telemedicine, vaccine development, immunity/sanitation and pandemic preparation, so there are lots of areas for investors to look at,” said Kerry Rupp, a general partner of Austin-based True Wealth Ventures, which invests in women-led startups in consumer health.
The pandemic is throwing a spotlight on the growing number of women venture investors active in the space. Impact America was founded by Kesha Cash in 2014; with an active portfolio of 10 investments, it’s had six exits. More than 80% of the limited partners of True Wealth Ventures are women. Cheryl Cheng, formerly general partner at Silicon Valley’s BlueRun Ventures, is launching Vive Ventures this fall. Jan Garfinkle, raised $250 million at her Ann Arbor, Michigan-based fund, Arboretum Ventures, in 2019.
“We believe that our (women-centered) thesis is still valid, if not even more so,” Rupp said. “Given that we are focusing on companies that improve human health, we think that’s all the more relevant now.”
There has been a large uptick in dealflow for mental health solutions, she said, which has come with the significant market need.
“The trick will be to find the differentiated solution that can scale to be venture-backable,” she said. “Maybe of the upstarts are very niche-focused on black urban consumers, LGBTQ+ consumers or millennial consumers with burnout. Many want to sell into employers but employers don’t want separate point solutions for each subsegment of their employee base, even if there is a real benefit to specific cultural awareness and understanding when it comes to mental health services.”
The Outlook: More Investments, Innovations Likely
Investments will likely expand in the health care broadly sector in the latter half of 2020 and 2021 because of the “natural desire for benefits that are typically associated with technical innovation,” said David Blumberg, managing partner of San Francisco-based Blumberg Capital, which provides early stage venture capital in technology and healthcare. “Because of COVID-19 we’ve seen the dramatic catalyzing impact on telemedicine, along with the growing need for artificial intelligence in diagnosis.”
Since March, Blumberg Capital has made two new investments – the firm invested $4 million in July in Angle Health, a health insurance carrier offering health plans designed for startups, and $9 million in April in Ferrum Health, which leverages artificial intelligence to help healthcare providers deploy monitoring solutions to identify and address preventable medical errors before they affect the patient.
Public Markets Drive Interest Downstream
Interest was also driven by the performance of health care companies in the IPO market. Funding for healthcare startups was very healthy through the first half of 2020 and reached $10.4 billion, which was close to the $10.7 billion raised in all of 2019, according to Silicon Valley Bank. Investments in biopharma increased due to large mezzanine deals while companies that used their technology to help in the pandemic also performed well with four IPOs that had over $1 billion market caps, the bank said. Another interesting factor is that companies that provide alternative care outside of hospitals raised 46% of capital in healthcare.
The first half saw increased fundraising by health care VCs, said Jeff Baumel, head of the U.S. securities practice and co-leader of the life sciences and healthcare industry sector at Dentons.
“As they raise more money, they must put that money to work,” he said. “We have seen great interest across the board, including early-stage ventures in biopharma. One important reason is the increase in the number of and the positive performance of healthcare IPOs which are leading the IPO markets generally.”
Ten of the 36 venture-backed IPOs have market caps of $1 billion or more now, according to the report from Silicon Valley Bank. After these companies went public, 15 companies generated stock prices that rose by 100% or more by the first half of 2020.
“The first half of 2020 produced the largest two-quarter investment total ever for venture-backed healthcare companies, despite financial market turbulence and setbacks to company product development, clinical trials, and revenues caused by COVID-19,” said Silicon Valley Bank.
Chicago-based Arch Venture Partners, a prominent fund in the middle of the United States, closed on two new funds, ARCH Venture Fund X and ARCH Venture Fund X Overage, totaling $1.46 billion in April 2020. Their portfolio companies, Vir Biotechnology, Alnylam Pharmaceuticals, VBI Vaccines, Brii Biosciences and Sana Biotechnology are working to develop COVID-19 therapeutics. Other startups such as Quanterix are working on creating technology that can help with clinical testing needs while Twist Biosciences is developing advancements in genomic and gene engineering tools used in COVID-19 therapeutic and vaccine development. Bellerophon’s inhaled nitric oxide (iNO) delivery system received emergency expanded access approval from the Food and Drug Administration for treatment of COVID-19.
Ann Arbor, Mich.-based Arboretum Ventures’s recent successful exits have been the sale of Maple Grove, Minnesota-based NxThera to Boston Scientific for up to $406 million and joint surgery company Si-Bone which went public last year in a $124 million IPO. The fund, founded in 2002, invests in medical devices, life science tools and diagnostics and tech-enabled care delivery. The firm also prioritizes companies that deal with chronic condition management, incentives for wellness and prevention, rising consumer engagement and the expansion of integrated care. The firm’s fifth fund raised $250 million in 2019.
What Segments of Healthcare Are Popular?
Along with mental health solutions, the ability to see patients in their homes is relevant currently, leading to an increase in telemedicine startups along with diagnostic aids such as digital or medical devices that patients can use at home to support the clinicians or remote patient monitoring tools such as sensors, Rupp said.
True Wealth’s portfolio company BrainCheck, which offers cognitive health solutions focused mainly on seniors and dementia/memory, worked quickly to add telemedicine options this spring. The telemedicine option allowed their physician customers to offer remote cognitive testing to senior patients at home via tablets or phones, sparing them the risk of coming into the clinic, she said.
Many startups are pivoting to providing solutions for COVID-19 such as rapid diagnostic tests, possible treatments or vaccines, Rupp said.
“We don’t invest in purely clinical solutions, but there’s a lot going on around pandemic preparedness and response and not just for COVID-19,” she said.
Public-private Sector Partnerships Emerge
True Wealth is participating as partners in a new initiative called the Texas Global Health Security Innovation Consortium (TEXGHS) that works with academia and both the public and private sectors to coordinate efforts to support companies working towards pandemic preparedness and response in Texas and beyond by looking at innovations in vaccination, therapeutics, diagnostics, prevention and access.
The silver lining from this crisis is the adoption of promising new technologies such as accelerating the transition to digital care models, Blumberg said. Beyond making quality healthcare affordable in hard-to-reach areas and producing more accurate data, it has been proven that digital therapeutics deliver better patient outcomes for those with chronic illnesses such as diabetes, he said.
“Digital therapeutics are expected to significantly influence healthcare delivery and its consumption across the globe,” Blumberg said. “This transformation will only continue to gain speed and is therefore a very attractive area for VCs. Digital health solutions are poised to deliver significant value.”
The biopharma industry is very strong, including oncology, neurology and health tech, said Baumel, adding that “the increase in series A interest should inspire healthcare founders to begin seeking VC funding earlier than they might otherwise.”
The pandemic-inspired trends are global. London-based RYSE Asset Management recently invested a total of £4.5 million (USD $5.8 million) in LiveSmart, Knok Healthcare, Log My Care, Firza and MediShout to improve care delivery via virtual consultations, workforce optimisation solutions for primary healthcare providers, platforms for digital virus tracking and care home digitalisation and reporting solutions for logistical and medical supply issues for helpdesk prioritisation. RYSE works with DigitalHealth.London, which runs an accelerator and fellowships and MedCity, a life sciences non-profit cluster organisation funded by the Greater London Authority and Research England.
Investors, both VCs and their limited partners, are also conscious of the opportunities created by crises. Some of the best venture-backed businesses were founded and funded in recessionary time including Salesforce in 1999, Facebook in 2004 and Airbnb in 2008, Blumberg said.
“In fact, recessions have served as a launchpad for some of the world’s most innovative businesses,” he said. “Despite market volatility, investors can and should identify those ‘future-proof’ companies born in 2020’s recession that will deliver real value to the world.”