Dave has officially gone bionic. While I wouldn't dare race him, I will gladly listen to his latest insights on the med-tech space. That's exactly what we do in this episode.
And we are back on SeedFunders podcast. Dave, I’m sore. I’ve been relaxed. But you know, I’ve been sitting in this seat for almost a week. Where the hell have you been? Where was last week’s episode?
Well, Joe, sorry, but I had knee surgery. And I’m on the mend now. I’m on the mend, where I actually had my first physical therapy session yesterday, and feeling good. And you know, the first-hand experience that I got in our healthcare system in the recent couple of months has just been incredible. I haven’t really had an opportunity to be part of the health care system. I’ve been very healthy. But with this knee surgery, I observed the technology that’s out there. And it’s incredible. It’s really incredible. There’s some examples that yesterday when I was at physical therapy, they showed me this treadmill, that’s an anti-gravity treadmill. And they use air pressure to reduce your weight so that you’re not putting full force on your joints while you’re learning – getting back into walking or running, anti-gravity treadmill incredible.
So, the therapist says… Well, I had my phone and she said, “Well, let me put that on my desk.” “It’s okay.” Her desk has wheels, it’s a stand-up desk with wheels that she rolls around. Everything’s remote, the connections are remote, everything’s remote. So, her desk is luckily a mobile desk. It just wheels around from place to place. And you know, other things like the scheduling. You get schedule reminders, you get schedule through texts all over the place. They’ve basically eliminated all the paperwork. You can sign up online and fill out all these questions online without having to go in and sit in a doctor’s office like you used to for half an hour filling out the same paperwork over and over. And if you use the same organization like I’m with BayCare, they have it from place to place.
So, you go to one BayCare location, you go to BayCare Physical Therapy. They basically have all your information online already. So, it’s really pretty incredible, setting up your appointment. They have an app for setting your PT. So, you go to your PT and, and she says, “Okay, this is what I recommend you do during the week.” And she sends you an app with all those recommendations, your personalized recommendations for physical therapy to do at home, on your phone. It’s just really, really incredible. So, you know everything, you know, these processes, drugs, but you know, patient care, communications. It’s really seen a vast improvement, for what my last experience has been in the med tech area. So, I thought we should talk about that today. Talk about MedTech investing. And by MedTech, I mean, medical technology, which we refer to in the industry as MedTech.
That sounds great. Alright. So, let’s start with the basics. What’s a definition of MedTech?
Well, there are a lot of different and varying definitions out there as with anything, but I like a few of them. I like this one from a publication called the, New Public Health. Medical technology can be defined as the application of science to develop solutions to the health problems or issues, such as the prevention or delay or onset of diseases, or the promotion and monitoring of good health. I like that because they include the monitoring in the definition, because it really opens the door to various software systems that otherwise may not be considered MedTech, because they’re not a medical device or a procedure or a drug. It’s a software system. So, monitoring includes those things. So, you know, any of these processes that develop software, health problems, they’re all definitely part of med tech.
Okay, I mean, 100 years ago, that would have been a shot of whiskey and some leeches. That’s pretty broad. Can we narrow it down?
Sure. Yeah. Again, let’s look at another definition. This is from the Clinical Engineering Handbook. And it states, MedTech includes medical and surgical procedures, drugs, equipment, and facilities and the organizational and supportive systems within which care is provided. So again, it refers to the organizational and supportive systems, which I think is very important in defining the whole MedTech industry. Those support systems are part of MedTech. For example, I noticed that these various phases of my diagnosis and treatment and automation and things like as I said, registering online appointment confirmations, online viewing of X rays and MRIs, they send them to you online and you could view your x rays online. Test results, sent in advance of follow up meeting with the doctor. You get an MRI, you get a test result, and you get the results the same time the doctor does. You sign in to your portal. And when you go to the doctor, you already know essentially what he has seen. It’s really incredible.
So, a lot of great innovation. So, how about through the investors’ eyes? What are they looking for?
Well, while I was recovering, I did some research on MedTech investing. And the first hit I got on Google was a publication from Deloitte, that was headlined, Venture Capital Investments in the MedTech Industry have Declined. Now, I was quite surprised, opposite of what I thought I would see. MedTech investment has declined. But you know, that’s the problem with the internet. Basically, things aren’t necessarily time stamped. So, I had to read the whole article and reports, look at their detailed charts. And I found out the study was using data from 2006 to 2016. That’s five years ago, their most recent data is five years ago. So again, you got to be careful what you’re looking at. It was way out of date. And you know, if that was true that investment has declined, I don’t think we’d be having a podcast today on it.
So, I’m guessing it hasn’t actually declined in the recent years.
You are correct. A recent article, or this was actually a blog by lady named Beck Johnson of SRG. It was dated April of this year, and it’s titled, Why VCs are rushing to invest in MedTech innovation.
Tell me why, why are they?
Well, the main reason is the ageing population. She points out that by 2051, out of every six people on earth will be at retirement age. That’s just incredible. Not only that, but there’ll be more people needing health care, but fewer health care workers, as the population shifts in that way. So really, it’s going to be absolutely necessary a demand for innovation, that’s going to require less people to do more work. So, she does say there are six specific themes that investors are looking for in MedTech. These are companies that deliver superior outcomes. These are companies that focus on innovation. We’re interested in investing in where they own the ownership of the patient journey from beginning to end. Are companies that are into what we call the consumerization of health. This is patient monitoring apps and things like that. Companies that are providing high quality value, and basically companies that improve efficiencies to bring down costs. So, investors are looking at those types of companies to make investments in the MedTech industry.
All right, when we look at all those investments, are we talking a significant amount of funding in MedTech in this year?
Absolutely. In the first six months of the year, $4 billion, has been invested in MedTech. Another lady Elizabeth Cairns of the Evaluate Vantage, recently published an article and she quantified that growth. She says, just in the second quarter of this year, there was $2.4 billion invested in private MedTech companies. And this excludes drug companies. This is the highest level since the first quarter of 2017. So, it is really taking off. Interestingly enough, by the way, her analysis starts in 2015. So, it includes the last two years of the Deloitte report that was previously cited. And she confirmed as you know, Deloitte pointed out 2016 did not see any significant increase in MedTech funding. And her report shows the same thing. But after that, it really started to take off and 2021 is going to be a record year for MedTech funding.
So why do you think the sector is so hot this year?
Well, COVID obviously had something to do with that. But Miss Cairns’ points out that venture capitalists do have their eyes on the post COVID era as well. She cites things such as investment in robotic surgery and soft tissue procedures. Now she does point out that most of this funding is not going to pure startups, as the top 10 MedTech companies really have been in business for about 10 years. So, they aren’t really pure startups, they’re already in business. But the thing to note here is that there is significant follow on funding taking place in the industry. Because these companies venture capitalists, investing in companies that were startups five years ago, three to five years ago were still early on. So, there is follow on funding. So, investments in MedTech startups now have a promising future. Once the company gains traction and looks to grow, there is significant follow on funding to make those companies successful.
That’s great. And how does one go about investing in MedTech?
Well, it’s my softball question for the day. You know the answer to that, it’s best to join a group. You can get diversity across the industry in different types of things, especially if you’re not an expert in the field. And the only way to see a lot of deals and get help in evaluating them is from true experts. And we’ve talked about this a number of times. And you can make your own investment decisions based on real expertise from people you know and trust. For example, at SeedFunders we have four doctors who are partners and they participate in meetings and due diligence. In fact, one of them is actually a cardiologist. But he spent his entire career in medical technology. So, we really do have the detailed medical technology experience to help any individual that wants to invest in MedTech.
And with that brainpower in the group, we have made some great MedTech investments to SeedFunders.
Actually, it is our largest investment segment. Almost half of our portfolio companies are actually in MedTech. They include companies involved in things like automated hardware, monitoring from medical facilities, telehealth platforms for pharmacies to deliver medication counseling, platform for small companies to launch their own self-funded medical insurance program, a disposal system to deal with medical waste on site, an IoT – Internet of Things company for wheelchairs that they have a cushion for wheelchairs that prevents bed sores by using Internet technology. And as well, we also invested in two drug companies.
And are we getting bionic returns yet?
Well not yet, relatively speaking, they’re all very recent investments, three years or less. So, it’s too early to tell. We have not had any exits. I can say, however, that all of them are still in business, which is one good thing. We always talked about a 50% failure rate. They’re all still in business. And any of them who need a follow-on funding have been successful in raising additional capital. So, when they do need follow on funding after we’ve invested, they’ve all raised significant additional capital at higher valuations, some are of significant increase in valuations compared to our original investment. In fact, we think we’ve participated in a lot of follow on rounds led by others on most of these portfolio companies.
Straight. Let’s stitch this up with some closing comments.
Okay. Well, I’m obviously, very bullish on MedTech startups. And I think everyone should diversify among startup investments, but I think MedTech is something everyone should have some investment in. You need the expertise to establish and look at these deals, you know, so if you join an investment group, that’s the way to go. As I said in the past, there are Angel groups in Florida, which include New World Angels, Miami Angels, Florida Funders, Bridge Angels, and of course, SeedFunders. And all of us have some experience in MedTech investing.