Startups, BioPharma, Telemedicine, Health Tech

Five VCs share how the pandemic has changed investing

Months into the Covid-19 pandemic, the pace of new investments for startups has picked back up. Five VCs shared what’s changed and how they’re working in the midst of the crisis.

Despite the constant drumbeat of new Covid-19 cases, deals are getting done. In the first half of 2020, digital health companies raised record amounts of funding, and efforts to develop a Covid-19 vaccine have thrust biotech companies into a new spotlight.

Now five months into the pandemic, the investment landscape is undeniably changed. Five VCs told MedCity News how they’re navigating the uncertainty in their current work, and what they’re watching for next:


Julie Grant, general partner with Canaan Partners

Notable investments: Protagonist Therapeutics, Cellular Research

MedCity: Early on in the pandemic, it seemed like most of the conversation was focused on taking a step back and helping portfolio companies. What did that look like for you? 

Grant: March was such a tumultuous time for our entire country, that every company in every industry in every corner of the world and every family was adjusting. We had a lot of meetings about PPP loans, layoffs, cash, and how to shift and continue to do work when the (contract research organizations) in China were shut down, and people were not in labs and it wasn’t clear who was an essential worker.

There was so much uncertainty that everyone took a moment to say, how do I support my ongoing portfolio companies in this time of change? That was very time consuming.

MedCity:  Are you still making new investments? 

Grant: We have led new investments, including seed and new company formation efforts since the start of Covid-19. They are not all people that have worked with Canaan before.

MedCity: On the biotech side, how are your portfolio companies handling the pandemic? Can they be in the lab now?

Grant:  Most of the people who have labs are doing shifts. Most of the teams that are not running the lab are all virtual.

…Childcare is still the number one issue that I think about at this point. Ironically, I say that as someone without my own children, I am most concerned about the impact upon our companies’ ability to execute and retain top talent, in particular women.

It’s a big deal. I think we have to find a way to be supportive. … I think more flexible work hours are going to become important for families in geographies who are going to have non-traditional, non-in-person school for their children.

MedCity: How has it affected your investment strategy?

Grant: We’re being very mindful about what companies can get work done in the next 12 months. If you’re going to do a randomized controlled study of an immunosuppressant, I’m probably going to have some questions about how that trial is going to get through IRBs when patients are nervous about being compromised.

We want to be able to understand whether or not the CROs, vendors and manufacturers that you are working with have people typically working in those buildings on your project. We have to understand the full value and supply chain of all aspects of these businesses. So we are doing a lot of granular work to make sure the company is not stuck at a standstill.

MedCity: What are your thoughts on all of the recent IPOs we’ve been seeing? 

Grant: Some of these compounds are barely in humans and the companies are worth a billion dollars now. I think it will be interesting to see whether or not those valuations can be sustained. … I don’t think anyone believes that the volume that has come into the biotech sector will be here forever. But I think it’s really interesting and important that these investors become more fluent in the way in which our industry works. And that’s positive.

… On a personal level,  I just hope our industry can live up to expectations. I often find myself right now reminding people about the fact that our understanding of the underpinnings of biology is so humblingly limited.


Steve Tolle, Partner at HLM Venture Partners

Notable investments: LetsGetChecked, Teladoc

MedCity: Are you still spending a lot of time with your portfolio companies?

Tolle: We’re still meeting with our portfolio companies more often than we normally would have before the pandemic. We’re in good shape because with the exception of two, most of our companies have recently refinanced before the pandemic. They have plenty of cash reserves.

The investment side has been very busy. … Since March, we’ve done five transactions. We normally do 10-12 investments in any given funding cycle.

MedCity: What types of companies are you investing in?

Tolle: One of our investments is on the diagnostics side: we co-led a round in LetsGetChecked, an Irish company that does at-home diagnostic testing. They just launched a Covid test, so they are clearly providing something that’s valuable right now. We think that trend is going to become much more mainstream than it would have been pre-pandemic to have people get tested in their home

We see a lot of people posturing as telehealth providers looking for investment because there are a lot of people interested in telehealth. We’ve been in telehealth investing since 2009. We just closed on a new investment for tele-behavioral health focusing on the worker’s comp space because in many states, first responders now qualify for PTSD treatment under worker’s comp. And we think there are going to be a lot of front line healthcare workers who are going to benefit from tele-behavioral health in the near term, because the stress has been incredible.

… We continue to look for things that are going to get adoption. But clearly the lens has changed a little bit in that we have to look at the near term: Are they going to survive, grow and provide a valuable service in the next 18 months? Because the next 18 months could be very challenging for startup companies.

MedCity: We’ve seen several mergers and some IPOs in the digital health space recently. What’s your take on that?  

Tolle: You’ve got companies that are looking at balance sheets they’ve never seen before, maybe even fantasized about. I wouldn’t be surprised if you see the Teladocs of the world use some of their balance sheets to go bring more services in house. … You’re going to see other companies that may not have been as strong who now all of a sudden have a valuation that is much more attractive and they might be able to exit. I think it will be a busy space.

MedCity: Are startups that sell software to providers or hospitals having a harder time right now? 

Tolle: I think it depends on where you fit on Maslow’s hierarchy of needs for hospitals. If you’ve got a solution that they really need, like telehealth or remote check-ins for patients coming in for procedures, you’re probably in a really good spot.

If you’re trying to sell analytics as a platform, you’re in trouble. You have to have a really well-defined value prop that’s timely for health systems.

MedCity: Are there any particular specialties within telehealth that you’re interested in? 

Tolle: We think behavioral health will continue to be an underserved area. We were investors in AbleTo; they just got recapitalized. We have three tele-behavioral health investments that serve different markets.We think that’s a great niche to be in.

There are some niche markets we’ve looked at like telehealth for low back pain and spine. That is an enormous cost driver for employers — the issue of opioid dependency. That is an interesting space. We see a couple of companies there that could be winners.


Dipa Mehta, vice president of corporate ventures and innovation for Advocate Aurora Health

Notable investments: Advocate Aurora Health hasn’t made its portfolio public, but in previous roles, Mehta led investments in Oncology Analytics and Contessa Health.

MedCity: What’s your view of the current investment climate?

Mehta: I think a lot of the funds have taken very typical approaches to maintaining and figuring out what this means from a portfolio standpoint. We take pretty small positions in the companies we’re investors in. We work closely with our syndicate partners to figure out where companies are at and what their runways look like.

From a new investment standpoint, there’s been a ton that’s been announced. In the first half of this year we saw more health care financings from a venture standpoint than last year combined. … A lot of these started before the pandemic and came into play in March or April. I’ll be interested to see what closes in the latter half of this year. Those are conversations that are happening right now.

MedCity: How has your work changed, not being able to meet with founders in person? 

Mehta: For a lot of VCs, getting to know the team and what that execution risk looks like is really important. I think more than ever, venture partners do calls around references. Not just getting to know the founders in person, but what they’ve done in the past. Those networks and those references are going to be more important going forward.

The only downside to using references and networks is that it kind of exacerbates this problem around the diversity of funding that goes into venture. You have to make sure you as a VC are thinking outside of the box about how you’re meeting founders.

MedCity: Has your investment strategy changed at all during this time? 

Mehta: Our strategic mandate hasn’t changed. We’ve got three main pillars to our strategy. The first one is really around transforming what our core operations look like. That might be through operational efficiencies or new ways to interact with patients through virtual health.

The second pillar is consumer first. How do we create a comprehensive experience from digital to in-person care? And the third one is around whole-person health.

For us, that strategic mandate was there before the pandemic. We just did a refresh of it and it’s exactly where we want to be by 2025 and beyond. We’ve set pretty rigorous goals for ourselves for where we want to be under these initiatives.

…The differences would probably be before the pandemic, we were thinking about virtual health and getting adoption from providers and consumers, to now thinking about how do you optimize it? How do you provide the right training and tools to enable a provider to do a telehealth visits versus asking them to do telehealth visits?

MedCity: What advice are you giving startups? 

Menta: One of the main questions that we’re asking, is really looking at what will reimbursement look like going forward. That will help create different business models as (startups) come of age. As you see a number of health systems move from fee-for-service to value-base care, where does their business model fit into that?


Tom Shehab, managing partner of Arboretum Ventures 

Notable investments: nVision Medical, Pear Therapeutics

MedCity: Are you making new investments, or are investors prioritizing working with their current portfolio companies right now? 

Shehab: Certainly immediately into the pandemic, almost all of the focus was on our existing portfolio companies. Now that we’re several months into this, we’ve all been seeing new deal flow. I’d say that has continued.

For us, deal flow is close to normal levels. That said, we’re seeing a couple of trends.

I think we’re seeing some companies who initially underestimated the impact of Covid who are now coming out to raise with more urgency. We’re also seeing a number of companies who are pivoting related to Covid thinking that their technology may have a tailwind from Covid.

The third trend we’re seeing is while there’s significant deal flow, a slowing in the pace of actually closing deals because of some of the challenges of remote interactions.

MedCity: What does that look like, meeting with founders remotely? 

Shehab: Even though we’re several months in, it’s still different. I don’t think people have fully adjusted to it. That said, there are some surprising benefits and some challenges. This is a very relationship-driven business and it’s harder to establish a deep level of comfort, transparency and partnership remotely if it’s a brand new experience. Although people are figuring out how to do that.

I think the technology is better than any of us thought at facilitating relationships with existing portfolio companies and our fellow investors.

MedCity: We still don’t really know how much longer this pandemic will continue. How do you navigate that? 

Shehab: Most of my peers with whom I speak all feel like Covid is going to impact us considerably longer than anyone expected. Given that, I think everyone is in a second phase of reevaluation.

… I think there’s a second wave of thinking around this now. There’s not going to be a short-term solution with vaccine or treatment changes that is going to return the world immediately to normal. The discussion for startups and for early-stage companies is to redouble the efforts they did at the beginning of this in terms of conserving capital, obtaining capital to buy them more runway, and making appropriate changes that fit into what’s happening right now.

That uncertainty of how long this is going to be I think is unsettling to everyone.

 MedCity: How has your investment strategy changed? 

Shehab: Our investment approach has always been opportunistic. We invest across a wide range of healthcare verticals, and so we haven’t changed that fundamentally. That said, there are clearly some trends that I believe are giving unprecedented tailwinds to certain fields — telemedicine, some of the certain digital health applications. Some of the diagnostic testing. Those I think are going to be durable longstanding trends. While we’re not looking at different technologies, we’re looking at them through a slightly different lens.


Elise Miller Hoffman, Principal at Cultivation Capital 

Notable investments: NarrativeDx, ImageMoverMD

MedCity: At the beginning of the pandemic, a lot of investors seemed to be focused on helping existing portfolio companies. What are you working on right now?

When the pandemic began, like many investors, we took some time to pause and evaluate the dynamic market conditions. Especially during the early weeks and months of the pandemic, we were in regular contact with our portfolio companies.

They were navigating PPP applications, cost efficiency initiatives, and risk mitigation efforts. We continue to monitor the situation as it’s changing day by day.

While I think we’re all navigating the impact of Covid-19, it’s been inspiring to see our portfolio companies that have been able to lead the effort in addressing the pandemic.

MedCity: For seed-stage companies, what does the investment climate look like for them?

Miller Hoffman: PitchBook just released their Q2 2020 Venture Monitor report which showed that the number of seed stage deals did decrease significantly. There were 316 completed seed financings in the quarter which is down from an average of 650 deals.

Some healthcare startups have struggled during the early months of the pandemic due to factors like delayed clinical trials, the inability of vendors to visit hospitals for sales purposes and the period of time when there was a cancellation of all elective surgeries.

On other hand, digital health startups have experienced record utilization and exponential revenue growth due to an increased need for their product offering.

MedCity: Has your strategy changed?

Miller Hoffman: We believe that healthcare delivery has forever changed as a result of the pandemic. Correspondingly, our investment focus has shifted to focus on the companies that are solving the pressing problems that have been exposed during the Covid-19 pandemic. I see immense opportunity in digital health solutions that prevent the spread of or increase our capacity to treat Covid-19.

The key area that a lot of people like myself are watching is telemedicine and remote patient monitoring. Just the willingness to adopt technologies like that has increased, sales cycles have decreased and the regulatory barriers have decreased too.

… We’re really interested in connecting with companies that have a relevant and meaningful Covid-19 use case but are well positioned for success after the pandemic subsides.

MedCity: What advice would you give founders?

Miller Hoffman: I’m noticing venture capital firms are still investing, but they might be more cautious as we’re all continuing to monitor the economic environment. We’re all performing our due diligence virtually.

There are fewer opportunities for those serendipitous collisions that happen at conferences and networking events. More than ever, we’re dependent on our existing networks.

When I’m thinking about advice for founders, I’m thinking about one, how can you find creative ways to deliver shareholder value? Two, nourish your current network. …  and in a world of Zoom meeting after Zoom meeting, how do you cultivate human interactions? I think effective communication, getting your point across clearly, succinctly and passionately is incredibly important right now to stand out and be noticed.


These interviews have been edited for length and clarity.

Photo credit: feellife, Getty Images