The ongoing pandemic brought about several challenges for investors looking for the next big thing, but some areas still have experienced growth. Experts addressed this topic and other issues during a panel discussion Oct. 6 at the Cleveland Clinic’s 2020 Medical Innovation Summit.

In kicking off the discussion, moderator Lydia Ramsey Pflanzer, health care editor, Business Insider, highlighted a bright spot, noting that by the end of the third quarter, digital health startups were doing well, raising $9.4 billion, according to Rock Health.

Still, the pandemic has necessitated changes for those in the venture capital space. As with others in a host of fields, Joe Cunningham, founding managing partner, Santé Ventures, said he is spending a lot less time on airplanes and traveling to meetings. For its part, Santé Ventures closed a fund last year, so his group is not fundraising. He and the other panelists agreed that managing the portfolio was a prime focus at this time.

Cunningham noted that Santé Ventures, which does early stage investing, has a virtual health company that is doing phenomenally well. In addition, conducting clinical trials by its med-tech and biotech portfolio companies has become a focus, and his group sees that it is currently easier to do a first-in-human in South America vs. Eastern Europe. But it’s important to ensure that the trials can move forward in terms of accrual, especially now.

“We have done iterations of devices, where we’ve gone further on the iterations before going and doing a clinical trial,” he noted.

Still, the human touch has suffered a bit. Currently, many meetings are done via Zoom or a similar platform. Previously, Cunningham has been able to forge relationships, meeting people in person.

“There’s a new generation of investors who are younger guys that aren’t getting that chance to go out and build networks.” This is certainly a change and could have an impact on investment decisions.

Panelists tended to agree that going virtual could have an impact in terms of new deals. Mudit Jain, founder and general partner, Strategic Healthcare Investment Partners, said in general his group is more comfortable going into new companies if they know the executive team from the past (or at least the syndicate members). That lends a level of trust, so an in-person meeting is not required. He also admitted that it's hard to get excited about an email pitch from a person he has never met, particularly in the current climate.

Cunningham agreed that his group tends to follow people and syndicates that are of a known quantity, while Alexis Ji, partner, Illumina Ventures, noted that the reputation of the team will be a factor moving forward, with reference checks being key. While reputation was a huge factor before, COVID has really put that front and center.

COVID, lean focus

While the startups have faced challenges in 2020, many are looking to help address the COVID-19 challenge. “Many of our companies – I believe at this point it's about 28 of our companies – have either used their technology or their platform to address different solutions around COVID,” explained Kristina Simmons, chief of staff at Khosla Ventures. She highlighted Alivecor, Color Genomics, Ginger.io and Opentrons as examples of companies offering options to help during the pandemic.

For her organization’s part, Ji has stressed going lean and having efficient structures. “I think a lot of companies in our portfolio really reacted very nicely, so I think a crisis to some people, really means opportunity,” she added. Her organization’s encouragement can help companies outperform their competitors on the other side of the crisis.

Funding pace

Ramsey Pflanzer asked the panel whether fundraising was overactive right now or less active at this point, and there was a consensus that fundraising has not completely fallen off the cliff. Still, the organizations did see some variation.

Dave Neustaedter, vice president, venture capital, Medtronic plc, said he couldn’t say whether a slightly smaller cohort of startups are coming forward in 2020. With that said, there are companies that need a top-up because they have not been able to reduce their burn, particularly if they are enrolling clinical trials.

“I think more companies are looking for cash, so in that regard, it would be thumbs up. But I think some percentage of funds are still a little ginger about making new investments.” Neustaedter explained.

For his part, Jain noted that when looking at the data, med-tech investment is a little flat when compared with last year. Meanwhile, Ji said her company has invested at a little bit faster speed when compared with 2019, but it was not too different from previous year. From March to August, the company invested in five new companies, she added.

“I would say it’s similar. There are some areas that we’ve doubled down in more, whether it’s this telemedicine plus AI theme, or faster ways for drug discovery using AI, or therapeutics, and I would also say diagnostics,” Simmons added.

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