Amidst significant hurdles faced by privately held digital health companies seeking funding this year, Merck Global Health Innovation Fund President Bill Taranto advised attendees at the Global Corporate Venturing Symposium in London, Europe’s premier corporate venturing and innovation event, to adopt five specific strategies to enhance their chances of success.
Data presented by Mr. Taranto, utilising PitchBook’s findings, revealed that in the first quarter of 2023, 10% of corporate venture capital rounds raised by Europe-based companies resulted in down rounds, the highest percentage since 2020. Concurrently, CB Insights’ analysis showed that Europe-based companies secured $10.4 billion in funding during the same period, a significant decline compared to the $29.5 billion raised in Q1 of 2022 and the $22.3 billion raised in Q1 of 2021.
“European startups in the digital health sector, as well as other industries, are navigating challenging times. However, there is cause for optimism, particularly for companies willing to redefine their strategies,” stated Mr. Taranto. “Now is the opportune moment to thoroughly evaluate your approach in this evolving landscape,” he emphasised.
Companies with less than two years of cash reserves can enhance their ability to withstand the current market volatility and secure additional funding by implementing the following five strategies:
- Begin with an Honest Assessment of the Current Situation: Companies must conduct a comprehensive evaluation of how each expenditure contributes to building shareholder value.
- Strengthen the Organisation: During economic downturns, high burn rates and extended runways are not advantageous. Companies should focus their spending on initiatives that lead to significant value inflection points.
- Foster Alignment Within the Investor Network: It is crucial to understand the interests of existing investors and engage with them early on. Clear communication regarding available investment funds, decision-making authority, and investor willingness to contribute is essential.
- Explore all Options: While dilution may not be ideal, the risk of running out of cash is far more detrimental. Raising funds through a down round may ultimately help the company survive.
- Embrace an Optimistic Mindset: Market downturns tend to expose weak business plans while fortifying resilient companies. Companies must be willing to take decisive actions to strengthen their position.
“Digital health continues to hold significant potential, and companies that implement these five strategies can forge a prosperous path forward,” explained Mr. Taranto. “Healthcare systems worldwide still require expanded access, enhanced capacity, cost reduction, and improved patient outcomes. Digital health innovations are instrumental in achieving these objectives and setting even more ambitious targets,” he concluded.
