Digital health investments: Road to success requires bold steps and an interdisciplinary approach

Since as far back as 2012, High-Tech Gründerfonds has been investing in start-ups that operate at the intersection between healthcare and digital solutions. In this interview, our Senior Investment Managers Louis Heinz (Digital Tech) and Niels Sharman (Life Sciences) share some insights into the synergies that arise from the HTGF team’s diverse perspectives and also give their take on where the sector stands in Germany and internationally.

Louis Heinz and Niels Sharman, Senior Investment Managers at HTGF

Digitalisation has become such an integral part of our society and the world of business. What makes the trend in the healthcare sector so interesting for you?

Louis: Digital health solutions are a macro trend. They are becoming more and more relevant, and they’re integral to solving existing problems. But the question is: When will we see their widespread application, and which business models will come out on top? More and more investors are aware of this and are banking on digital health. And that means that promising companies have got relatively good chances of securing follow-on financing.

What I find fascinating in the field of digital health applications is the fact that validated therapies are being created at the intersection between technology and medical science. All digital health applications that are covered by health insurers are validated based on study data and are backed by scientific evidence. And that puts up a barrier for me-too products looking to get in on the action.

Niels: Something else I find fascinating is that, in an ideal scenario, a relatively low-cost solution can create a win-win situation for patients, doctors, the healthcare system and potentially even pharmaceutical companies. For example, patients are able to manage their illness more effectively and track the medications they’re taking, helping to reduce side effects. The pharmaceutical industry gains access to anonymized “real life” data on how effective their drugs are, which side effects they cause, and whether patients can adhere to the treatment plan. These insights can be leveraged to optimise future R&D processes. And for doctors, who must keep an eye on lots of patients, these digital solutions are great for bridging the time between personal appointments.

HTGF has already invested in a broad portfolio of digital health start-ups. Do you have a special approach when it comes to this field?

Louis: One of HTGF’s USPs is without doubt the fact that we’ve got the digital expertise as well as the life science/pharma know-how. On the one hand highly focused life science investors may sometimes struggle to understand when things get too “digital” and topics like customer acquisition costs and customer channels are in focus. On the other hand, tech investors can sometimes feel a bit uneasy when it comes to regulatory matters or the analysis of clinical data sets. Although we are two different teams at HTGF, we regularly talk to each other about the market and opportunities for the fund.

Niels: That’s right. But even with these two perspectives, when push comes to shove you need to be willing to take risks and invest in business models that are not yet established or, in some cases, not even tested – that’s often the case when it comes to digital health companies. As an early-stage investor, taking risks is practically part of our DNA. We’re often the first institutional investor to get on board, sometimes building on a business angel round, and work closely with the young teams to pave the way forward. And to a certain extent, I think that makes us one of the pioneers when it comes to digital health investments in Europe. In fact, we have been investing in this area for 14 years. At a time when the term digital health was just emerging.

Have you got any tips for founders on what you look for as investors and what they can do to win you over?

Niels: Since we invest in start-ups at a very early stage, the team is obviously hugely important. Their individual track record is a key aspect – but so (too) is having a team of people with skillsets that complement each other. The founder teams need to navigate their way through the duality of the pharma and tech world – an aspect that we touched upon earlier. But I think if they’re smart about how they go about it all, they can get the best of both worlds.

Louis: You’re spot on. Having teams with the right skills to juggle both worlds is key. We do of course also look for cases where there’s a tech component that is difficult to reproduce, or start-ups with a truly innovative business model. The “digital edge”, i.e., the innovations made possible by the digital component, should be clear to see.

Where does the sector stand internationally at the moment? And what does the future hold?

Niels: I think we are still pretty much at the start. Things will get exciting when we have an interconnected ecosystem and are able to tap extensive amounts of data and leverage synergies. To get there, we need to continue to break down data silos and increasingly digitalise all processes – electronic patient records, hospital software, and interfaces between doctors, health insurers and pharma companies. All market participants will of course have an obligation to handle the sensitive data with care, but that’s an issue that can be solved. This, as well as the growing volume of clinical study data, will in my opinion make it crystal clear that the widespread integration of digital solutions in the healthcare system makes sense.

Louis: From an economic perspective, I hope to see the first few major exits – company acquisitions or IPOs. That would help the entire ecosystem. Advances in Europe-wide regulation on insurance coverage for digital health applications would also be very positive. France and Belgium are clearing the road ahead for digital health applications, and things are happening in other EU states, too. That, in turn, means that in addition to local players, we can also build European champions that can expand in the US or potentially also be acquired by US firms. That’s what I’m looking forward to.

Thanks very much for sharing your thoughts!

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