Healthcare startups take a special combination of factors to succeed, both within the business and the investors they attract. As the co-founder of new digital health fund, Healthy Ventures, Enmi Sung Kendall firmly believes in the importance of a well-balanced management team that can ground their technology with healthcare experience and vice-versa.
But she also suggested that entrepreneurs be choosy about their investors and steer clear of dabblers who can’t advance their business.
In a phone interview with MedCity News, Kendall expanded on her take on startups in the healthcare space, investment philosophy, and her background along with co-founder Anya Schiess.
I’m pretty accustomed to hearing investors dismiss technology startups who take on healthcare for creating a viable business in a heavily regulated industry rife with potential pitfalls. But I’m not used to hearing that technology investors should think twice about the space as well.
Kendall suggested that the complexities of the healthcare market mean that the barriers for entry should be just as high for entrepreneurs as investors. A longer sales cycle in healthcare mean you would never have the healthcare equivalent of the flashy viral technology like Meerkat survive the marathon of getting it to market.
She takes a dim view of the multisector funds that are starting to dabble in healthcare. She sees it as a good way to lose money and a potential time waster or worse for entrepreneurs who don’t consider the consequences.
“Healthcare 101 doesn’t cut it for investors. Healthcare was so stagnant and glacial and now it’s a hamster wheel for everyone,” Kendall said. “Healthcare has remained protected from the innovation upheaval, because of the fee-for-service paradigm, but that protection is diminishing.”
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.
In referencing the huge learning curve for would-be healthcare investors, Kendall added that she would include herself in that group since much of her background has focused on technology rather than healthcare. But one of the great things about working with her co-founder is they can play to their strengths.
Although Kendall and Schiess trace their start in healthcare back to University of Pennsylvania’s Wharton’s Healthcare Management program, their investment backgrounds are different. Kendall’s focus has been with technology companies and Schiess’ experience has been with medical device companies and investing in later stage companies, most recently with Cardinal Healthcare.
The contrast in their respective backgrounds means they bring different perspectives, Kendall added. Her experience as a startup founder and angel investor lead her to drill down on proof points and identifying points of traction they can test. Anya looks at the company from the context of the entire healthcare value chain.
Kendall noted that their experience has informed them of how critical it is to balance the founder’s healthcare background with a person possessing the technology background to understand human-centric design, product design and how to launch a product into the market to ensure there’s a balance of expertise. “We want to marry functional talent with topical talent.”
The company wants to be known as management extenders for early stage companies. A critical part of that involves helping startups secure pilot partners who may later be customers.
“So much of the viability with early stage companies is ‘can we land super valuable first time clients?’ ” Having mid-level managers who Kendall describes as the “workhorses of the industry” as advisers to startups will make a big difference in securing these customers.
Another point of emphasis is the need to recognize the difference between providing a solution to a healthcare problem and doing that through a viable business. Kendall also sees healthcare accelerators as playing an important role, particularly with contacts for entrepreneurs. She serves as a mentor for Sprint’s mobile health accelerator. But given how many of them there are, until they’ve been around for a few more years and alumni can compare notes it’s still difficult to predict their long-term success.
She also sees benefits and downsides to entrepreneurs working with strategically minded funds. Firms view it as learning vehicle, but It’s not always the best use of an entrepreneur’s time teaching versus tractioning. She noted that a learning curve is important, but shouldn’t be done on the entrepreneur’s dime.
Kendall said the company sees its investment niche as somewhere between the friends-and-family financing round or graduating from an accelerator to a Series A round.
“As a rule of thumb we will stick with companies that are really young,” she said. “We will be somewhat opportunistic, but we will spend the bulk of our time looking at seed stage investment [opportunities].”
But Kendall added that between them they have the connections to bring in follow-on funding that’s critical to the survival of early stage companies.
“We also want to help early stage companies find the follow-on funding they need to succeed – unlike the estimated 50 percent to 60 percent of seed funded companies that don’t get follow on funding.”
The average size of investments it will make will range from $250,000 to $1.5 million. Among potential targets are mobile devices in the area of continuous care and behavior change and automation solutions for providers in response to more consumer-directed healthcare.
Kendall said their first investment will be announced in the next couple of months.
