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By Heather Munro, freelance writer focusing on emerging technology.
Pitching to a room of venture capitalists is a nerve-racking experience, especially for first-time entrepreneurs and new startups. To raise $10 million in a Series A funding round like the house call/video conference platform Remedy or closing an even more impressive $73 million funding round like the digital chronic disease management company Omada Health takes a keen understanding of what VC firms want to see before they hand over the money.
While both Rock Health and StartUp Health reported that 2019 first-quarter investment dipped below that of 2018, digital health backing is still going strong. Interest from investors remains high even as the industry continues to mature.
So whether startups are focusing on interoperability, big data or blockchain, there’s still plenty of opportunities to nab investors. Read on to find out what investors are looking for when considering backing a startup or entrepreneur.
1) Products that Address All Stakeholders’ Needs
Because healthcare affects multiple, disconnected parties—payers, providers and patients—it’s often a difficult area in which to launch new products. Being able to demonstrate how a new product benefits each party, therefore, is key.
“The vast majority of businesses that we invest in are B2B, and so when we do that we’re always looking to make sure that all the stakeholders are aligned,” Brett Cook, senior associate at F-Prime Capital said in an interview with MobiHealthNews. “And even when you have all the stars align, you’re still looking at 6-, 12-, 18-month sales cycles, and you sell to payers and providers. So it’s really important from the outset that you understand all the incentives and you understand the way the purchasing and use of these products unfolds.”
2) The Founding Team’s Ability to Lead
Whether it’s health tech or not, investors want to know your team is well-positioned to build and execute a plan to become a market leader, according to Arie Abecassis, author of Entrepreneur Voices on Elevator Pitches.
In addition to wanting to see you have sufficient staffing to cover key areas, Abecassis says investors will ask:
What kind of expertise does the team have that makes them an authoritative figure in the market?
Does the team have complementary skills as it relates to sales and marketing, product development and operations?
Is there a strong chemistry on the team and does everyone play nicely with each other?
3) Demonstrated Commercial Traction
Being able to show that your product already has sales, customers or users is another big plus for investors, especially in the slow-to-change healthcare industry.
Why? It proves your startup is more than an idea—customers are already seeing benefits from using your product. It also shows your business has a critical proof of concept and indicates the potential for growth.
4) A Key Differentiator
Finance expert David Bradshaw says investors love startups with a competitive advantage. Being able to communicate what makes your product unique—and how it is better than your competitors’—will most certainly separate your startup from the pack. Again, this builds your case for being a market leader.
5) Thorough Financial Projections
Bradshaw also says that startups need to understand that investors care about primarily one thing: making a return on their investment. While that may seem obvious, entrepreneurs will win points when they have a detailed financial projection that includes an exit strategy, plus:
A complete description of the assumptions behind the model
A complete set of pro forma financials: income statement, balance sheet, and statement of cash flow
A return on investment analysis using capital budgeting techniques and various ROI calculations
Sensitivity analysis around key variables
Cash sources and uses report
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