Deal Dive: Cutting through the noise in a category clouded by catastrophic failure

Building a startup is hard enough but growing one in a category marred with Theranos-sized stigma is a new level of challenge. Vital Bio seems up for the test.

The Toronto-based startup is building a machine, VitalOne, that can perform more than 50 blood tests — covering nearly all of those considered routine — and get patient results back in 20 minutes, not multiple days. Co-founder and CEO Vasu Nadella said that he got interested in the space because he and his co-founders have watched family members deal with chronic illness and know that being able to get quick diagnostic results is crucial for treatment.

Plus, Nadella wanted to know why companies couldn’t seem to get the solution to this problem right. While Theranos failed for a variety of reasons, the other companies trying to build these quicker blood diagnostic tools had yet to ship products. He thought maybe he could crack the code.

The startup launched in 2019 and built quietly until it debuted its device at the American Association of Clinical Chemistry’s annual meeting — the industry’s “Super Bowl” — last Monday. Vital Bio also announced that it had raised $48 million in venture funding from Labcorp, Inovia Capital, Lachy Groom and Sam Altman, among others.

Nadella said the company has focused on making sure that its device produces accurate results and that when it does drift, they know how to prevent it from impacting the final diagnosis. He said the company waited to start talking about what it was up to until it felt it had enough to back up its claims.

Deal Dive: Caraway shows what else digital health can do

Access to healthcare has long been an issue in the U.S., but the sheer magnitude of the problem became apparent during the early days of the COVID-19 pandemic. Numerous digital health startups stepped in to address the plethora of issues, and for a few quarters, VCs flocked to back them.

Many of those startups are still focusing on the same things, like telehealth primary care or chat-based therapy, but there’s little visibility into the adoption and customer acquisition they’ve seen. It’s clear investors aren’t so sure either: VC investment in digital health dropped to just $3.4 billion in Q1 2023 from a peak of $15.1 billion in Q2 2021, according to CB Insights.

I’m not saying the sector is dead in the water by any means, but the founders still finding success are doing far more than merely building off their peers. A recent fundraise illustrates clearly what VCs are finding attractive in the sector, and the types of startups that may find traction in today’s climate.

On Wednesday, digital health startup Caraway said it had raised an oversubscribed $16.8 million Series A round led by Maveron. The startup looks to offer 24/7 access to physical and mental health resources targeted at Gen Z customers, and its integrated healthcare service has doctors and nurses who are always available for text chats and calls. It also offers tools that help its customers maintain and respond to mental and physical health issues in between appointments or when professionals are offline. The app is licensed to operate in 10 states.

When founder Lori Evans Bernstein started the company in January 2022, she had just left her previous startup, HealthReveal, which used AI to help people manage chronic illnesses. Around the time, Evans Bernstein realized how hard it could be for people to get treatments when talking with her niece: After 15 weeks of fruitlessly waiting for appointments to treat a reaction to an unknown allergy, her niece simply gave up and hoped it wouldn’t come back.

“The more I peeled the onion, the more I couldn’t believe the lack of access to care and the experience they had to go through to get the care they needed,” Evans Bernstein said. That story inspired her to start Caraway, aiming to do away with those barriers to accessing healthcare.

Deal Dive: Caraway shows what else digital health can do by Rebecca Szkutak originally published on TechCrunch

How two founders approach building ethical AI startups in health care

The speed at which AI companies are evolving is making a lot of people nervous. That’s because moving fast could lead to potential ethical issues that aren’t able to be addressed.

Building ethical algorithms takes time. Models that were built quickly are more likely to have ingrained bias while lacking the necessary guardrails in place to keep them from causing unnecessary damage. If done in haste, or done poorly, AI models have the potential to cause real harm in certain sensitive industries, such as health care.

But, of course, many of the worries center around new founders riding into the space on the hype train as opposed to the numerous entrepreneurs who started building models with care years before the current market dynamics.

Amy Brown, the founder and CEO of Authenticx, a startup that helps health care companies gain insights from their customer call center data using AI, said on TechCrunch’s Found podcast that those looking to build AI algorithms should recognize the potential negative consequences of models being built incorrectly.

How two founders approach building ethical AI startups in health care by Rebecca Szkutak originally published on TechCrunch

11 investors predict a colorful, if difficult, future for psychedelic startups

How far has the psychedelics medicines industry come over the past 12 months? Well, it depends on where you look.

If you look at the stock market, the view isn’t very good: the charts are all down and in the red, and all you can see are psychedelics companies tottering by, doing their best to impress cynical investors.

Similar to most other sectors today, that crumbling of confidence in the sector has trickled down to the private markets as well, slowing down venture dealmaking and further shrinking deal sizes in an already parched venture market.

But if you focus and leave your preconceptions behind, you’ll find that beyond the skein of valuations and share prices, there is a world of spirited dealmaking, ripe with impetus for building a sustainable industry. A recent survey by TechCrunch+ indicates that investors and founders are, instead of simply looking for attractive opportunities, increasingly putting their minds to building the foundations for an industry that can employ the power of psychedelics to change lives.

For Bek Muslimov and Nikolay Tretiyakov, co-founding partners at Leafy Tunnel, the problems currently being tackled by the industry are proof of the nascent sector’s progress. “The questions our industry is grappling with are becoming more refined and nuanced, reflecting the necessary maturation. Amongst these questions are actual costs of therapies, reimbursement coverage, the commercialisation strategy for psychedelic drug development companies, resource bottlenecks with the therapists’ supply and infrastructure, etc,” they told TechCrunch+.

We’re widening our lens, looking for more investors to participate in TechCrunch surveys, where we poll top professionals about challenges in their industry.

If you’re an investor and would like to participate in future surveys, fill out this form.

Regulation is moving forward, too, albeit slowly, with only Oregon and Colorado taking steps to partially decriminalize psychedelics. But even as the industry looks to those states to serve as testbeds for everything from drug development to integration into the healthcare infrastructure, several investors pointed out that the U.S. is not the only place where psychedelics are seeing interest.

“Decriminalization is not the same as legalization at the Federal level. I believe we will continue to see international locations as primary testbeds as the larger question of legalization in the U.S. is discussed,” said Amy Kruse, chief investment officer, Satori Neuro. “The developments in Australia this year are extremely interesting and worth watching closely. As Australia is often a site for clinical trials research in the psychedelic medicine ecosystem, it will be worth watching to see how this develops. Will they take the lead?”

Like several investors we surveyed, Kruse doesn’t solely invest in psychedelics, but they are very much on her radar. The firm she’s part of, Satori Neuro, is a new venture that aims to invest in solutions to address mental health challenges, including psychedelic medicine.

But she and her ilk are part of the few investors willing to enter the space, as the majority of investors, especially institutions, still labor under misapprehensions about psychedelics or aren’t interested in risking their money or reputation.

“For most institutional investors, psychedelics continue to be a ‘no can do’ sector to invest in,” said Sa’ad Shah, managing partner at Noetic Fund. “While we can certainly argue for the major strides made and progress on the regulatory front, institutions still need to see it to believe it. Secondly, this sector is still too small. It does not warrant the kind of capital that most institutional investors typically put to work.”

When this could change likely depends on how regulation is framed and how the healthcare industry responds to advances in the space. But that’s not to say the path to commercialization and wider adoption is closed to psychedelic startups and investors at the moment.

Tim Schlidt, co-founder and partner at Palo Santo, explained it succinctly: “Rather than seeking to change how our healthcare system operates, we believe this early generation of psychedelics must transform and adapt to fit within existing infrastructure. Rather than trying to storm the ramparts, we believe a Trojan horse approach is the only means by which these therapies can achieve wide-scale adoption.”

Read on to learn about where these investors are placing their bets, how they decide which companies to back, what are the prospects for M&A in the space, how to best approach them, and more.

We spoke with:

Sa’ad Shah, managing partner, Noetic Fund

How has the trajectory of listed psychedelics companies affected private firms and start-ups?

Listed psychedelics companies were highly overvalued in 2021, and the correction in the markets has brought valuations for private companies back to more standard early-stage levels.

Investors are more prudent with capital today, allowing capable founders and teams working on a great product with a good business plan to shine through rather than being drowned out by the noise.

The adjustment of expectations from investors also allows private companies to grow organically and make decisions with good counsel.

Sa'ad Shah - Managing partner - Noetic - Headshot by Andrew

Sa’ad Shah, managing partner, Noetic. Image Credits: Andrew

At the same time, generalist investors burned by investing in bad apples could now have developed an adverse view to investments in the space, costing good companies backed by deep tech venture firms access to additional pools of capital. The inability to raise more capital in this environment has caused many good companies to shelve or halt promising programs and prioritize survival over rapid growth.

Other than disagreements over prices, which factors have impeded M&A activity in the psychedelic space in the last 12 months?

There are three main factors impeding M&A activity:

  1. Isolating the magnitude of efficacy: While there are clear signs of efficacy in clinical trials, the magnitude of the effect being assignable to psychedelics alone is still a work in progress. Big pharma awaits more data on this front before an M&A move. In the meantime, pharma and big biotech VC firms are more interested in exploring the non-hallucinogenic psychedelic pathways.
  2. Intellectual property uncertainty: Due to the 18-month window of uncertainty in filing patents and being granted one, there is some hesitation with acquisitions.
  3. Maintaining cash balances: In this environment, biotechs are focusing on prioritizing and rationing their cash for their lead programs and are being more deliberate than before when making big moves.

Drug development is very costly, and start-ups are having a harder time raising cash. Does this make psychedelics startups that aren’t developing any drugs more attractive to investors than those involved in drug development?

Business models that can generate revenues with low burn rates have always been more attractive to the traditional investor than non-revenue generating businesses like drug development. However, there are investors who still understand the unique risk-reward profile in each case, and hence, founders need to be able to approach the right investor.

There are drug development companies that continue to raise capital at higher valuations due to the continued validation of efficacy and the “optionality” that exists in their program — i.e. they are pursuing several promising leads/molecular pathways. What is riskier, especially at this point in time, are pure drug discovery companies that don’t have any leads to take into trials anytime soon.

Whether developing a drug or not, a company would be attractive to investors if and only if it is addressing a key problem in the market that cannot already be solved by incumbents efficiently. Several non-drug development companies touting to be “specific to the psychedelic industry” would only be successful in the long term if they have a unique and differentiating value proposition, can develop a sustained economic moat, have a proven track record of raising capital, and have the right team to execute.

How has your approach to the psychedelics sector changed since our previous psychedelics survey a year ago?

Our view of the markets from a year ago has only been validated by what has transpired in the psychedelics market.

Our overall focus is and has always been on central nervous system (CNS), and we are agnostic as to the modality, be it psychedelic drug development, other pharmacological approaches, medtech devices, or digital therapeutics.

When it comes to the psychedelics sector in particular, we feel this industry has clearly matured from being a toddler in its terrible twos to an adolescent, but there is still a long way to go. We continue to focus on the non-hallucinogenic approach to psychedelics, as it has the most promising prospects of being commercialized with much less scrutiny while adhering to current standards of care.

We were not surprised by the closure of several ketamine clinics, as we stated last year that given the industry’s life cycle, we are too early for “downstream” opportunities to have a viable chance of succeeding.

What we weren’t expecting was the level of headwinds the markets are facing overall, which is affecting money-good companies from raising additional capital to shepherd their plans through. This is very much a Darwinian model being played out. The strong and most adaptable are the ones that will survive.

We have to accept that the failure rates for a startup in a new industry such as ours will be high, especially in light of the macro backdrop. As such, our approach is to have a high-conviction portfolio and lean on/back the companies that have the ability to execute well in any given environment.

We also feel that the simple ‘pick a molecule and an indication’ strategy that was easily funded in 2020/2021 will go extinct, as it is not a viable business model. To survive, you must show safety and efficacy, protect your IP, be differentiated, and have a team that can execute on the science and business in order to commercialize and scale.

Colorado and Oregon voted to partially decriminalize psychedelics, but there are caveats. Should these U.S. states be considered testbeds for what might happen in this space globally? Why or why not?

If we want to talk about testbeds, we should first and foremost look at Australia, which has been the first out of the gate to legalize MDMA and Psilocybin for therapeutic use under proper protocol and compliance.

In jurisdictions where psychedelics are being decriminalized, it is likely that psychedelic-naïve individuals would access psychedelics outside of the medical system. To reduce any unforeseen risks in these cases, it is imperative that effective pre-screening protocols and post-session psychotherapy and support be implemented to ensure people have safe and effective access.

Additionally, a reliable source of information to educate individuals would be required. It is therefore our goal to focus on the regulated paths (e.g., FDA, EMA, Health Canada) to usher in psychedelic-assisted psychotherapy to patients in a safe, efficacious and accessible manner.

It is imperative that the decriminalization process ensures that the right safety checks are in place. This requires proper education about psychedelics and safe protocols to follow.

11 investors predict a colorful, if difficult, future for psychedelic startups by Anna Heim originally published on TechCrunch

The crackdown on pixel tracking in telehealth is a warning for every startup

Healthcare startups are scrambling to reassess how their websites and apps are built, and how third parties may, inadvertently or not, be putting patients’ protected health information at risk.

In March, U.S. mental health startup Cerebral admitted it shared the private health information of more than 3 million users with Facebook, Google, TikTok and other ad giants via so-called tracking pixels. These near-invisible bits of code are typically embedded in web pages to share information about users’ activity, often for analytics. Cerebral said these trackers inadvertently collected sensitive user data since it began operating in October 2019.

In its disclosure to the U.S. Department of Health and Human Services (HHS), Cerebral said that following a review of its code, it “determined that it had disclosed certain information that may be regulated as protected health information under [the Health Insurance Portability and Accountability Act],” or HIPAA, as it’s commonly referred to. This information included patients’ phone numbers, IP addresses, insurance information, mental health assessment responses and associated clinical data.

This data lapse is the third-largest breach of health data in 2023, according to the HHS, which is investigating the breach. However, while Cerebral’s lapse ranks among the most serious and damaging, the breach is just one of many currently being investigated by HHS — and this list is likely to grow.

More casualties

Last year, a joint investigation by STAT and The Markup found that dozens of hospital websites and telehealth startups were sharing patients’ medical information with advertisers and tech giants.

The crackdown on pixel tracking in telehealth is a warning for every startup by Carly Page originally published on TechCrunch

How Mindbloom’s CEO sees the future of psychedelic mental health

“What was something amazing that happened to you this weekend,” Mindbloom’s CEO Dylan Benyon asked me, less than 30 seconds into our call. His bright eyes and relaxed demeanor radiated a deep peace and presence, paired with what seemed like a genuine care for the other person on the call — something that’s rare in an interview with a CEO. Sure, he was talking with a journalist to further Mindbloom’s mission, but he was modeling something that runs deep in the mental health startup’s DNA: being there for others.

Benyon built Mindbloom after finding deep healing for himself in psychedelic medicine. For him, the journey started a few years ago when he experienced a facilitated MDMA treatment. Apart from wanting more people to experience the radical healing powers of promising medicines that were chased underground as collateral damage to the war on drugs in the 1980s, Benyon has seen the mental health medical machine failing people very close to home.

“Mental health is the number one public health crisis, and depression is the number one cause of disability worldwide. Suicide is the second-leading cause of death for people 18 to 35 and the number three cause of death for people 35 to 55,” Benyon rattled off the statistics, before the words got stuck in his throat. “My sister and my mother became fentanyl overdose statistics last year and the year before. This is deeply personal and meaningful to me. And when you look at the root cause of why we’re losing the fight to the mental health crisis … our existing treatment options just aren’t getting the job done.”

Benyon’s sister and mother both had severe mental illnesses, Benyon said. Navigating the mental health options available to them was harder than finding more accessible relief in self-medicating with fentanyl.

“My family was obliterated by mental illness. My mother was schizophrenic and an addict. My sister was schizophrenic and an addict. For both of them, wee tried the traditional treatments: antidepressants, anti-anxiety meds, anti-psychotics, one-on-one therapy, group therapy, in-patient rehab, out-patient rehab … Unfortunately, none of them worked well enough,” Benyon said. “My mother ended up spending 15 years homeless because we weren’t able to help her. My sister would have been homeless if she wasn’t sheltered by my father. She died of a fentanyl overdose after getting out of rehab last year.”

How Mindbloom’s CEO sees the future of psychedelic mental health by Haje Jan Kamps originally published on TechCrunch

Despite 2022’s headwinds, women’s health startups did better than ever before

It’s been seven months since Roe vs. Wade was overturned, and the dust has barely begun to settle.

Politically, voters have expressed their overwhelming support for a person’s right to access abortion. Grassroots campaigns continue, and technology-wise, innovation in the wider women’s health sector is only gearing up.

But have things improved at all for the sector? Or has the souring of sentiment across the political spectrum only scared investors off? TechCrunch conducted a vibe check to see where this sector stands, and found a prevailing sense of guarded optimism.

For Oriana Papin-Zoghbi, CEO and co-founder of early ovarian cancer detection company AOA, the sector has tons of potential to grow, but raising capital remains a challenge, as some investors still think of it as a “niche market.”

However, things are changing slowly but surely: “Women still comprise the majority of investors who most deeply understand our product, but we are luckily seeing an increase in the general population who are interested in investing,” Papin-Zoghbi told TechCrunch.

She closed a $7 million seed round last year and is now raising a Series A. “We still have a very long way to go in changing opinions about the importance of investing in women’s health. We are not a niche market as 50% of the population.”

Janna Meyrowitz Turner, the founder of Synastry Capital, echoed similar sentiments. She noted that women’s health startups are looking beyond traditional venture capital for funding, turning to avenues such as family offices, corporate venture capital, and crowdfunding. She’s also heard conversations about strategic mergers and joint ventures.

“I foresee capital to healthcare companies increasing in 2023,” she told TechCrunch. “But I’m not as optimistic when it comes to misogyny in the investment and medical fields shifting as quickly as public sentiment has on things like abortion or even health benefits of the female orgasm.”

The funding for women’s healthcare companies doesn’t look all that bad, though. According to PitchBook, such startups raised around $1.16 billion in 2022, less than the $1.41 billion they raised in 2021. The good news is that the $1.16 billion is much closer to $1.41 billion than it is to $496 million, which was the amount women’s health companies raised in 2020, and $476.8 million, the amount raised in 2019. This indicates that investors didn’t revert to pre-pandemic levels and the sector is still trending upward.

In fact, women’s healthcare tech companies, also known as “femtech,” did quite a lot better in 2022 in relation to digital healthcare funding. Even though funding in the digital health sector fell to about $8.6 billion in 2022 from around $16 billion a year earlier, femtech’s share rose substantially from previous years — the sector’s share of digital health funding was 13.26% in 2022, compared to 8.75% in 2021, 7.6% in 2020, and 11.8% in 2019.

Data Visualization by Miranda Halpern, created with Flourish

If anything, there appears to be increased investor interest to continue funding innovation in this sector, despite the economic and political headwinds standing in the way.

Despite 2022’s headwinds, women’s health startups did better than ever before by Dominic-Madori Davis originally published on TechCrunch

Predictions for the longevity industry in 2023

Last year was when we all got the wake-up call about longevity. From major reports published on the impact of longevity by the National Academy of Medicine and McKinsey to every leading newspaper, public discourse highlighted how our global healthcare, financial and housing infrastructure was failing to serve a rapidly growing older adult population.

While this demographic data is not new, from kitchen table talk to Congress, there was a heightened call for urgency and immediate action.

At Primetime, we observed this wake-up call beyond the research and media attention. First, our deal flow of early-stage businesses in the sector increased from 70 in Q4 2021 to 120 in Q4 2022. And, we were one of only three dedicated funds investing in aging and longevity when we launched in 2020, but we are now aware of at least six more agetech funds in formation, in addition to many other existing funds keen to expand their team to cover the sector.

We are very optimistic for 2023 as we see incredible founder momentum, untapped areas to build new businesses and a window to an increasingly tech-accessible, rapidly growing consumer market.

Here are our top predictions for the longevity industry in 2023.

By 2030, the 50-plus market is projected to swell to 132 million people, who are projected to spend an average of $108 billion every year on tech products.

Health span is the new life span

The COVID-19 pandemic had a dramatic impact on older adult behavior with regard to technology usage, penetration of telemedicine and remote health monitoring, early retirement and financial insecurity. Sadly, one of the harshest implications of the pandemic was that life expectancy in the U.S. declined to 77 from 79.

This year will shift the conversation from “life span” to “health span” — how we live healthier for longer.

While telemedicine usage has declined from its peak during the pandemic, the new average is much higher than before the pandemic. We are particularly excited about companies that will accelerate the growth of 100+ primary and specialty-care telemedicine startups by managing their technology, patient payments and reimbursement, as well as provider acquisition and certification.

In an effort to prevent costly hospital visits, the past few years have seen a proliferation of startups offering supplemental health plan benefits for older adults — from transportation to home modification.

Predictions for the longevity industry in 2023 by Ram Iyer originally published on TechCrunch

5 tips for healthcare startups fundraising in a down market

In fundraising, a founder’s greatest challenge is not selling any particular product or strategy. Instead, it is often unwinding and re-aligning the investor’s biases.

The competition is not your market competitor or incumbent. More often, it is the investor’s set of operating heuristics, many of which are quickly influenced by market conditions.

Fundraising in healthcare, especially in a macro environment like the one we’re in, is an opportunity to differentiate and take control of the narrative. When markets start to dip, most companies hunker down and focus on surviving. In moments like these, healthtech companies can take advantage of the status quo gettting upset and rise to the top of a crowded field, signaling to the market why they are the horse to bet on.

Reframe the macro view

When the market seems to be trending downward, it’s an opportunity for founders to take control of the narrative and re-frame how investors view market conditions based on a deep analysis of their sector.

Broadly compared to other industries, healthcare often remains resilient during times of economic distress. When everything is going well, it’s easy to forget and even easier to underappreciate the acyclicality of the healthcare market as a whole. But a quick look at data from the Bureau of Labor shows that employment in the sector continued to grow during the last recession, a testament to how robust the sector is.

If entrepreneurs and investors treat every interaction as a one-shot game, we will all eventually lose trust.

While employment may not be a comprehensive barometer for all healthcare activity, the demand for real solutions to real pain points in healthcare will continue to be inelastic. If you’re in services, frame your business around this labor demand; if you’re developing solutions for software, operations and RCM, leverage this growing gap between the need and the adoption of technology.

In this environment, funds will be looking for acyclical markets to invest in. This is an opportunity for you to capture this capital pool.

Get granular

In a market inundated with “digital health” startups and “infrastructure solutions,” it’s vital to differentiate yourself.

Move beyond generic labels that no longer tickle the interest of healthcare investors, and instead map out the progression of your company in three acts, from seed to IPO, even if you’re already a late-stage company:

5 tips for healthcare startups fundraising in a down market by Ram Iyer originally published on TechCrunch