Venture Capital financing in Q1’20 will be the second steepest decline in the past 10 years according to data from CB Insights. We asked 3 investors from our network to share their business priorities, how they adjusted their strategies and how are they helping their portfolio companies.
Source: CB Insights
CHRISTOPH KAUSCH, MTIP
MTIP is CHF 60M fund, focused on healthech growth companies (Crunchbase). Christoph Kausch is an experienced healthcare investor, entrepreneur, and strategic leader who founded it.
Tech Tour: How is the COVID-19 crisis impacting the funding landscape for startups?
Christoph Kausch: Like the rest of us, startups have not been exempt from the impacts of COVID-19. Some have benefited from the increased demand for technological solutions, enabling connectivity in light of social isolation. Other startups – in retail, for example – have clearly suffered. I think the hardest thing for both startups seeking finance, as well as investors, is the current state of uncertainty. There’s a general unwillingness to commit to new investments that aren’t “COVID-proof” right now when we don’t know how long this will all last. Many investors had already felt that startup valuations had been overflowing for some time now. In this respect, there has actually been evidence of better alignment between investors and management teams on finding the best solution to close the deal. There’s enough capital in the market to ensure that the best companies will still get funded. It just may take a bit more time than usual. It’s an obvious consequence that Investment Committees want to see additional diligence and risk assessments for COVID-19. I think it’s also very important now more than ever to support existing portfolio company management teams in their additional funding needs via both grant funding and additional capital injections if needed.
Has your investment strategy changed?
On the contrary. Today, the key pillars of our investment thesis have actually strengthened to a point that they are impossible to ignore. Several years ago, at MTIP, we recognised that the system was not able to keep up with demand, and the healthcare sector would need to innovate and leverage new technologies to continue to operate at a sustainable level. We have four key trends that we focus on in making new investments based on the structural shifts happening in the healthcare industry. These include decentralisation; patient-centred and personalisation of care; value-based payments and outcomes; and proactive, preventative care.
Decentralisation has become a particularly poignant topic as of late. In an environment where we are all isolated in our homes, it is companies like Tytocare (telehealth solutions) and Quanta (at-home dialysis) that are an increasing necessity. One of our portfolio companies driving patient-centred care is Lumeon who has already developed and sold its first COVID-19 pathway to a large New York care hospital network. On the preventative side, we’re proud of Oviva’s mission to support diabetic patients, patients at risk of diabetes, and overweight individuals to stay healthy via the use of their software platform and direct access to dieticians. Value-based payment models are also increasingly important as hospitals continue to operate at or above capacity.
We continue to be confident both in the defensiveness of the healthtech sector and our investment strategy, now more than ever.
How do you help and support your Portfolio Companies that are accelerating in these times?
Luckily, we have just provided these companies with additional financing! We are in regular contact with management teams to make sure that we are supporting them in every way we can. If that includes additional financing, we will work with them to find a solution. As we typically focus on companies that are revenue-generating, most often it is not a question of financing but of expertise. We work closely with them to identify and remove any bottlenecks, adjust organisational planning, seek new revenue opportunities, pursue acquisitions, etc.
Are you planning on investing? If yes, in which sectors?
Absolutely. As a Healthtech growth investor, we typically look for companies that have proven product-market fit, have secured any necessary regulatory approvals, and have demonstrated the health economic benefit in a clinical setting. We look to partner with management teams once they are at the c. $5 million revenue mark, with a clear roadmap to profitability. It’s at this point where we feel most comfortable in supporting the company for rapid market expansion, and we can leverage connections with potential trade buyers in our network. Our most recent investment was in a company called Trialbee, where we led the round as the exclusive new investor. The company is a leading global technology provider for patient matching and engagement in clinical trials.
DIANA SARACENI, PANAKES
Diana is General Partner and co-founder at Panakes Partners, a €100M (Crunchbase) investment company focused on Innovative Early Stage Medical companies all over Europe, and more particularly in Italy.
How is the Coronavirus crisis affecting the VC industry and your business and plans in particular?
To be honest, Panakes’ main agenda and priorities have not changed much. We have kept a good working pace even in difficult conditions. Portfolio companies usually require more of investors’ attention in critical times, such as this one, when important milestones are delayed. Overall, I believe this situation might even benefit some sectors such as life-sciences and some start-ups also thanks to governments’ financial support measures, etc.
Are you planning on redirecting investments? If so, in which sectors?
Panakes invests in MedTech/Life Sciences. Some medical technology companies might experience a slowdown, mainly because of a temporary stop in elective surgeries and procedures or delay in clinical studies. Assuming we’ll soon have to be back to normal, we don’t expect any major changes in the final investment outcome. On a different note, it is likely that Healthcare will be perceived as a strategic asset by governments and investors after these tremendous times, with benefits for the entire Life Sciences investment world and our communities.
How do you think the VC industry will react? Are you expecting a change of focus?
In these last weeks, we heard about closings of big funds, some companies’ big financing rounds, and even oversubscribed IPOs in the Life Sciences space. Even if we all experience that in the current uncertain investment times, in general, it might take a little to significantly longer than before. Right after the institution of the lockdown, many funds worked hard to manage and advice portfolio companies on how to financially and economically survive the current climate. This is the way the VC industry has historically reacted to critical moments such as this one.
What is next?
We are moving in the right direction and I hope soon we’ll be back to a sort of normal for most of our activities. Most of us in the industry will keep working smart and attending digital conferences (by the way, not that bad!) and adapt to them well. I have no doubt in that!
SASCHA BERGER AND CATELLO SOMMA, TVM CAPITAL LIFE SCIENCE
TVM Capital Life Science has raised 2 funds, their latest being TVM China BioPharma Capital I. It raised a total of $50M. (Crunchbase).
What helped you adapt to the ongoing digital transformation?
We are a transatlantic fund with teams in both North America and Europe. Hence, smart digital tools and a state-of-the-art IT infrastructure are crucial for us in all times. As a result, we moved all our applications to the cloud and incorporated videoconferencing as a standard tool for internal purposes already before COVID-19. This allowed us to continue working without any major interruption.
In the current COVID-19 climate, everybody has to deal with new standards of working, adapting processes, and implementing new working dynamics. As VCs, it is crucial to constantly grow, learn, and have access to the right sources of information as an individual and as a firm. That helps to face unexpected challenges such as going “fully virtual”. After almost three months, this model has demonstrated to work very well. Both of us have young kids at home, and the fact that we can now meet all the entrepreneurs and companies virtually without the travel burden is a nice personal element in a very challenging time.
How is the Coronavirus crisis affecting the VC industry and your business and plans in particular?
The industry and our business are affected in multiple ways.
“Fundraising” for funds will become more challenging. Specialised and highly experienced Life Science Funds like ours can greatly benefit from the current high interest in the sector, but in times of crises, investors tend to be cautious.
“Investing” becomes more challenging as this crisis disrupts certainties, business models, and industries, and the way we interact. Many business models are stressed or will become more challenging; others have clear tailwinds. And whereas as a result, many VCs reduced deal activity, we increased it while critically recognising new patterns and relative risk-opportunities.
What’s more, in any crisis, tight “Portfolio management” becomes even more critical. The frequency VCs will interact with their companies increases. Most discussions will be around cash management, increase of cash reach, and focus on core activities. However, it may also be wise to exploit the disruptive potential of this crisis and intensify R&D and business building.
“Exits” will be challenging as the IPO window in fact closed and M&A will be difficult for some time as well.
Very frequent communication with all stakeholders is key.
What type of start-ups are you planning to invest in? In which sectors?
We continue to invest in three different areas:
- Early-stage therapeutics (pre-IND or ph I), where we exclusively focus on licensing out a single asset of interest into a newco, providing the entire financing required to move the asset to a clinical proof-of-concept (up to $25M). However, we do not participate in syndicated financing rounds of early-stage biotech companies.
- Later-stage therapeutics (pivotal study stage or beyond), where we can join syndicated financing rounds as a lead or co-lead investor with a $10-20M ticket.
- We also continue to selectively invest in de-risked diagnostics, medtech, and digital health companies. We focus on technologies past regulatory hurdles (in particular FDA), close to or at commercial stage.
What is next?
Good question. We work with scenarios and hope that the worst-case scenario is just an academic exercise and will not become a reality. In any case, we do expect increasing complexity within life sciences. This implies more contouring of specialised VC firms like us to contribute to better solutions for patients while protecting the interests of our investors.
As conscious optimists (otherwise, we should not be VCs), we plan for the worst but hope for the best.
