Securing investment has become an uphill battle for privately held digital health companies amidst challenging conditions. Nevertheless, Merck Global Health Innovation Fund President, Bill Taranto, delivered a ray of hope to entrepreneurs at the prestigious Global Global Corporate Venturing Symposium. Taranto outlined five strategic actions that, if followed, can greatly enhance the chances of success for companies seeking funding in this demanding landscape.
In the first quarter of 2023, 10% of all corporate venture capital rounds raised by Europe-based companies were down rounds, which is the highest percentage since 2020, PitchBook data unveiled by Mr. Taranto showed. Over the same period, Europe-based companies raised $10.4 billion, which is far below the $29.5 billion raised in the first quarter of 2022 and the $22.3 billion raised in Q1 of 2021, according to an analysis by CB Insights.
“European startups in digital health and other sectors are navigating difficult times, but there are plenty of reasons to be optimistic, especially if you are a company that is willing to rewrite your playbook,” Mr. Taranto said. “Now is the time to deeply think about your strategy for this environment,” he added.
Companies with less than two years of cash on hand can increase their chances of weathering the current market turbulence, and can raise additional funding, by pursuing the following five courses of action:
1) Start with an Honest Appraisal of Where You Are. Companies must begin assessing in detail how every dollar spent helps to build shareholder value.
2) Get the Company in Fighting Shape. High-burn and long runways are not a winning approach in economic downturns. Limit spending to what helps the company reach important value inflection points.
3) Align Your Syndicate. Understand the interests of your existing investors and approach them early. Be clear about who has money to invest, who holds the power to make decisions and who is willing to invest today.
4) Consider all alternatives. Dilution won’t not kill a company, but running out of cash will. Raising a down round could ultimately help your company survive.
5) Embark with optimism. Market downturns have a way of weeding out inferior business plans and making strong companies stronger. Do whatever it takes to get stronger.
“Digital health still has a bright future ahead, and so do companies that follow these five courses of action,” explained Taranto. “Healthcare systems worldwide still need to expand access to care, improve capacity, lower costs, and improve health outcomes for patients. Digital health innovations are the way to accomplish these goals, and help us set even more ambitious new ones,” he added.