By definition, creating a startup is a new process. Even for those who have founded companies, each new startup has its product or service, its team, its leadership and its network. But there is one thing that unites almost all startups: the need for investment.
These new businesses often lack the network and know-how that more established companies have, and finding funding can be a long and arduous journey. The additional regulatory and payer hurdles present in the healthcare industry make launching a startup in this space even more difficult.
Dallas Startup Week this summer included a session that helped answer some of those questions about funding and featured three experienced panelists. McKaye Black is the Senior Business Design Strategist for Blue Cross Blue Shield of Texas’ C1 Innovation Lab, whose goal is to help health plans and employers work together and innovate solutions. Lauren Tyra is the Chief Scientific Officer of Green Park & Golf Ventures, an investment firm focused on healthcare with over 150 companies under management. Dr. Hubert Zajicek is co-founder and CEO of Health Wildcatters, a healthcare startup accelerator that has developed 88 startups that have raised $250 million in funding since 2013.
Here are five tips for healthcare startups on how to get funding:
1. Look for an early investment.
Venture capital and private equity funds are pushing for ever earlier investments and indirect development opportunities in healthcare. Companies must therefore be prepared to present and persuade these backers at an early stage, otherwise they risk missing out on their opportunity. Early investment provides more value to the funding partners. When raising capital for an investment, many companies are looking to go into business when the business is just getting started. And remember, there are more good ideas than there are funding, so being ready for a game-changing investment is more crucial than ever.
2. Build a full team.
Businesses need more than just a brilliant idea that will make a difference. Backers look holistically at the whole company, especially the management team. Do the founders have previous releases? If so, what size? Do they have experience bringing products to market? Can the team be trusted to take a good idea and turn it into a viable business? Are they ready to navigate the regulatory landscape? Meeting an unmet need is essential, but there is more to funders than assets. Startups should be non-sentimental when building a leadership team and consider how potential backers will perceive the leadership team’s experience.
3. Build a legitimate communication strategy.
Every company these days has an app, so there might seem to be too many in the world (and there may be). But when communicating with customers or customers, businesses should use a more legitimate means of communication than a cold call. With robocalls and scam calls rampant, backers want to know that a business can connect with their target audience unscreened. And once the company has connected with the public, how can it convince customers and clients that the organization is working in their best interest? Building trust through communication and being able to tell the company’s story to customers is an essential step.
4. Don’t be afraid to think outside the box
Tyra highlighted a company that Green Park & Golf has invested in called Supergoop!, a San Antonio-based sunscreen company that has seen significant success since the investment. They were often asked why they invested in a retail product that seemed out of their reach, but sunscreen is the #1 way to prevent skin cancer, so the company felt that it was perfectly suited to preventive health. Venture capital giant Blackstone bought a majority stake in the company last year, valuing the company at between $600 million and $700 million. This was the biggest release in Green Park’s portfolio. The goal is to think outside the box when targeting backers, as the company may bring in companies they hadn’t considered.
5. Have data at your fingertips.
In relations with health funders, it is essential to provide clinical data, where appropriate. The startup will likely have to deal with private or government payers and seek FDA approval. These entities will want to see trials and results. Many firms think they won’t have to do any testing and that backers will see their brilliant idea and give them money, but most investment firms see the lack of data as a warning signal. ‘alarm. It’s called evidence-based medicine for a reason. Additionally, leveraging resources such as incubators and accelerators is crucial to being able to ask questions, make mistakes, and create data that can back up the pitch.
Will is the editor of CEO magazine and editor of D CEO Healthcare. He wrote about health care…