Companies in the Pharma and Medtech space need to cover all their bases before connecting with investors.
The fundraising process may seem straightforward, but it’s important to understand how it might vary depending on your focus area and progress in the market. Understanding the steps from research & development to commercialization are paramount.
Additionally, successful startups must first address the need behind their solution or drug, and then address where they are going, how their company plans to get there, and why investors should care.
The story should touch on the following research questions:
- Why does the pharmaceutical or Medtech platform matter? Is there a proven clinical need for the solution?
- Are there similar solutions on the market today? What is the size of the market?
- Who is the target end user? Who will purchase the product?
Every figure outlined in the presentation should be backed by data. Throughout, the pitch should address what segment of the market the solution intends to penetrate. And of course, the exact funding needed to complete each piece of the puzzle is key.
Fundraising in the Pharma Industry
Today the Pharma sector is rife with investor interest. This is largely the result of the innovative technology and an extensive pipeline of drugs in the later stages of R&D.
Paired with demand from investors, who have renewed interest in the space (particularly in the wake of the COVID-19 pandemic), founders in this industry are well-positioned to secure further revenue in 2022.
While the U.S. leads the Pharma space, equity investment in European startups reached a record high in 2021. This trend is slated to continue—and there’s no single fundraising pathway. Depending on the stage of research your drug is in, however, some fundraising solutions will be more effective than others.
For example, an idea in the discovery phase, with plenty of raw data available, will be more appealing to a VC than a concept alone. Grant funding, meanwhile, might be a better fit for a pharmaceutical in the very early stages of development.
Fundraising in the Medtech Industry
Previously, Medtech was considered a risky investment in Europe. Today it has become a priority for even the most hesitant investors. This has resulted in a marked increase in VC interest especially.
The reason for this is quite simple. As the pandemic progressed, investors began funding the medical technology sector unlike ever before. And while the public health crisis has eased in much of the western world, investor interest in Medtech persists.
From telehealth to electronic prescription solutions, and even virus diagnostic platforms, private Medtech companies received $4 billion in investments in the first half of 2021 alone. IPOs are progressing in this space at a remarkable rate as well, making Medtech platforms a major draw for investors.
So how should Pharma and Medtech companies proceed in their search for funding?
Let’s go deeper, and discuss how Pharma and Medtech companies might fund their solutions in 2022.
How Can Pharma and Medtech Companies Fund Their Initiatives?
Fundraising solutions in Pharma and Medtech include but aren’t limited to the following:
Venture Capital Funding
Many startups turn to venture capital (VC) funding to fund their pharmaceutical or digital health solution. While this is a longstanding approach, it isn’t always easy. VC funds have specific criteria for the companies they invest in. They also, on average, operate on a 10-year timetable.
These aren’t the only considerations. Healthcare tech and pharmaceutical leaders should keep in mind that VC funds have expectations involving their desired return on investment (ROI) and internal rate of return (IRR). Exact amounts may vary among Series A, B, and other seed rounds, though a 20x ROI and 30-to-40% IRR for early-stage startups is common.
Ultimately, VCs can be quite appealing—so long as Pharma and Medtech companies work diligently to make good on their promises and stick to the agreed-upon timetable.
Accelerators and Incubators
Accelerators and incubators aren’t ideal for everyone. They will almost certainly offer less money than a VC, but there’s a reason for their popularity: These entities can propel young companies toward the next stage, both monetarily and in the way of the knowledge and skills they bring.
How so? For Pharma and Medtech entrepreneurs who understand the clinical benefits of their solution, but have yet to navigate the economic side of their business, an accelerator or incubator can give them the experience they need to thrive.
Pharma and Medtech companies in an accelerator or incubator will also have access to reasonably-priced labs and offices, deep medical expertise, targeted programming, and like-minded colleagues. The resources available to navigate regulatory compliance challenges are simply an added bonus.
Grant Opportunities
Grant funding can yield powerful results in the Pharma and Medtech space—especially if the solution in question can help to solve a major health challenge, technological roadblock, or critical condition. Some startups might even view grants as a substitute for VC funding.
But is this approach viable? Many grants are available exclusively for solutions in the development stage, though some opportunities are more flexible.
According to Tom Vanderheyden, former Vice President of Business Development and Commercialization for UnitedHealthcare (UHC), companies might take the angel rounds of just a few hundred thousand dollars to get started, and then go on to apply for $1 million or more in grants. “We’ve seen that to be very successful,” he adds.
(It’s worth noting that Vanderheyden is now CEO of his own Medtech startup, OnMed Station—a self-contained medical unit leveraging patented technologies to connect patients with practitioners.)
Family Offices and Individual Investors
Another alternative to traditional VCs are family office venture capital groups and individual investors. These entities are mission-driven, allowing Pharma and Medtech leaders to align with people with a history of supporting their exact cause.
If you are creating a digital health platform for cancer patients in remission, for instance, you might find a family office or individual investor who connects with the cause on a personal level. Perhaps they are cancer survivors themselves, or maybe a loved one experienced the disease.
While these solutions are more flexible than conventional VCs, and they likely won’t have a timetable, startups should still expect specific investment criteria. That said, the fact that family offices and individual investors understand the clinical need for the solution will go a long way.
Conclusion
All investors are looking to make money with minimal risk involved. To maximize their fundraising success, Pharma and Medtech companies must understand—and mitigate—the risks they face, understand the best fundraising pathway for their needs, and consider the range of investors available to them.
