There’s a panoply of alternative funding streams for healthcare startups out there — fledgling companies are seeking out avenues like prepaid revenue models, grant funding in lieu of venture capital, and the ever-popular crowdfunding approach.
The outcomes can be a mixed bag, however, said a panel of speakers at MedCity News’ CONVERGE conference in Philadelphia today.
Many corporations are starting to see the advantage of prepaying startups for service, said Tom Vanderheyden, vice president of business development and commercialization for UnitedHealthcare.
For early-stage companies that interest larger customers but “don’t have the cash to deliver on what we believe they can,” corporates can take on the risk of paying large sums of cash for services up front. By doing this, they support the ongoing work of the upstarts with the early-stage funding, and wind up getting the tailored services they want in return.
Another funding model that healthcare startups are moving toward is choosing to aggressively pursue grant funding in place of venture funding, Vanderheyden said.
“I’m now seeing companies take a couple hundred thousand in angel round to get started, and then focus on grant funding,” he said. “I’ve seen a fair amount of success in that – it’s a meaningful enterprise that’s generating a lot of IP.”
Vanderheyden shared an anecdote that highlighted the pros and pitfalls of using crowdfunding to get early seed funding for a healthcare startup. Though it can be a fast way to generate a significant amount of seed capital, he said he recently spoke with a CEO he recently met that took over for some company that had been crowdfunded – and found the process was more stressful than anticipated.
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
“The company had 450 non-accredited investors, and it was a disaster,” Vanderheyden said. Investors that had contributed incrementally were now calling the CEO, he said, asking for money back.
“Think of it as an early CEO — then now you’ve got dozens and dozens of potentially upset investors,” Vanderheyden said. “It’s a lot of managing relationships with shareholders.”
While the trend of startups joining accelerators has risen in the past five or six years, said Joseph Mayer, CEO of Cureatr, it’s getting to the point that some companies that are involved with two or three such organizations are beginning to feel “accelerator fatigue.” It’s no longer quite as validating to be involved with these organizations, and alternative approaches to funding and jump-starting a company are gaining more traction as a result.
