The case of Assistive Technologies and Devices – a VCs perspective
I’ve been meaning to write this essay for a while now, because this one topic I keep seeing come up hits close to home.
While some parts of healthcare are slowly picking up the pace in technology adoption, others are still way behind – and unfortunately, it’s not just a developed vs developing country problem (e.g., whether you’re from the UK, USA, Singapore vs. Colombia, Vietnam or Bangladesh). I would have really liked to have read this ‘letter to myself’ many years ago when I first started my own healthtech startup as it would’ve helped me better understand how VCs think and avoid many sleepless nights and headaches.
So, let’s talk about the assistive tech and device market!
Back when I was starting out CastPrint, our initial business focused on fracture-related injuries. As we developed our tech’s capabilities and increased network in the local healthcare community, we started to gain exposure to the world of rehabilitation. We noticed that many injuries/diseases in the post-acute phase required some form of assistive tech or device during the rehabilitation phase.
What we soon found out was how fragmented the space was with stakeholders that had significantly opposing interests as well as the general disconnection of rehabilitation services from the general healthcare services.
Why am I writing this?
Being a founder of a healthtech startup that was almost always rejected by VCs hurt. Not because I had a lack of trust or belief from VCs, but because I knew that not getting funded meant that we couldn’t help the people who most desperately needed our products. It also didn’t help reading about all the other healthtech startups get funding left and right, leaving myself feeling like a low-budget baseball team.
Since transitioning to the VC side 6 months ago, I have had the great opportunity to meet many more amazing healthtech startup founders that have already or will soon create groundbreaking assistive technologies and devices. Starting from really beautiful prosthetics, orthotics and all the way to smart robotic devices that can significantly improve patient rehabilitation getting back to living an active and fulfilling life.
The challenge is that each time I meet them, I see the same struggles I faced way back. VCs reject them and they try to survive via non-dilutive funding (grants), pre-orders via crowdfunding or angel money. Clinics and clinicians reject their devices (or are slow to adopt in the more optimistic cases) due to a number of reasons – some objective, some very subjective. In the middle of all of this, are the parents of a child with cerebral palsy looking for an assistive device that would finally give some slight relief to their child’s condition or the sons/daughters of a stroke survivor who has developed a spasticity in their arm looking to get back basic functionality.
Why would a VC fund a healthtech startup that focuses on assistive devices or technology?
As I wrote in my previous essay about VC math, not all tech startups are VC investible because of the business how a venture capitalist makes his/her money. How can a healthtech startup that creates assistive technologies and devices can return 20-40x to the investor? According to WHO around 1 in 10 people around the world need some kind of assistive devices, so the market size has the potential to provide these returns.
So, if the size of the market is not the problem and the tech is also not the problem, why would a VC still be reluctant going into the assistive tech space? The answer - how people access their devices.
Take the current standard as an example - a person needing an assistive device goes to a clinic, gets their measurements taken, goes back home, goes back for refitting, again goes back home and finally returns one last time to receive his/her device.
Can you spot the problem? Multiple back and forth with friction at each step. This oversimplified example even excludes any reimbursement agency, which always complicates matters with extra steps and procedures.
Unfortunately, it doesn’t matter if the assistive tech/device is high tech with groundbreaking science behind it or carved out of wood that is stitched together with Velcro. In both cases, the pathway how the device is received does not significantly change.
Reduced friction = better adoption = higher scalability = greater returns
Having such a friction heavy process also significantly influences the unit economics of the business. If you can help people only via clinics, how quickly can you sign them up? Are your and the clinics interests aligned? What’s the life-time value of each clinic? What’s the life-time value of each assistive device? Most importantly, how will you provide the product or service in multiple continents simultaneously? Finally, can you create all of this within a fund’s life-cycle (i.e., 10-12 years)?
If the pathway of receiving an assistive technology or device remains the way it is now and only the tech/device changes, then the business is not VC investible because the probability of providing the needed returns is much lower comparing with other healthtech startups working in other healthcare sectors.
If, on the other hand, a startup that deals with assistive devices changes how people receive their devices with the help of technology, then a VC could take a much closer look at the case, as the potential would be much more than just the assistive technology or devices themselves.
In healthcare, more often than not, its more about the access to the service than the product or service itself. With many stakeholders with different agendas and interests, it is a complex system that very few healthtech startups manage to solve in the long run. Unfortunately, assistive tech startups are at an even bigger disadvantage because not only is it hardware (which opens up too many challenges these days) but also because the service itself in the current healthcare system is friction-heavy, slow, and very unfriendly to the person needing the device or technology.
The good news is that – as history shows us – sooner or later an industry that is disconnected with the needs of the end user for a long period of time will be eventually disrupted and new products and services with the end user at the center will emerge.
If you’re a healthtech startup founder whose startup focuses on assistive devices and / or technologies, do not get discouraged by this essay. Yes, you are at a disadvantage compared with other healthtech startups, but at the same time you also do not have a Babylon/Teledoc-like big competitor with hundreds of millions of dollars in funding in your space, and your market today is still up for grabs!
Let me know what you think! Happy to be challenged on this! If you’re working on assistive tech or devices, be sure to reach out.