Here are a few thoughts on why venture capital firms and government funders could co-invest (and why they don't) in healthcare technology more often
By Dhevi Kumar, MA, MHS
Dhevi Kumar is interested in private and public sector investment in the global health space. She’s worked on public private partnerships throughout Eastern African and Haiti. She’s currently based in Seattle, Washington USA. The views expressed below are solely those of the Author
Why Don’t Venture Capital Firms and Government Funders Co-Invest in Healthcare Technology More Often?
Health tech has seen significant investment from the venture capital (VC) space as well as multi-million dollar government sponsored cooperative agreements. In 2018, VCs invested nearly $10.6 billion in healthcare startups. Government funded Cooperative Agreements typically issue five year awards of almost $100 million to support a host of treatment and preventive care services. Investors and funders both appear aligned in their support of emerging technologies that have the potential to make money and save lives.
And yet, venture capital firms and government funders tend not to collaborate on their investments in the healthcare technology space. In my own experience in the public-private intersection of digital health and data initiatives, I’ve often wondered why this is the case. The push towards standing up sustainable investments (products that will actually make their own money beyond their initial seed funding) aligns with both VC and philanthropic interests.
Given the shared goal of getting the most bang for the buck, it seems like entities on opposite ends of the funding spectrum would try to meet each other half way more often. Whether combined investments from public agencies and industry, or a philanthropic grant with matched investments from companies, start-ups, or even private individuals (different variations of public-private partnerships, or PPPs), the motivation to stretch a dollar/euro to get to a result faster seems like a no-brainer.
The pros of such collaborations revolve primarily around shared opportunities:
1) Mutual interest in leveraging data to improve health outcomes. Government entities hold critical access to vast datasets that startups can leverage for breakthroughs in the machine learning and artificial intelligence space.
2) Shared vision of fueling cutting edge research with an agile approach via an influx of capital; including rapid design, testing, iteration and refinement.
3) Shared investment also equals shared risk so no one entity shoulders the burden of success or failure – especially in a space where the consequences of failure could mean lives lost or threatened.
However there are also potential blockers that can threaten the success of these initiatives:
1) Government funding agencies and VC firms often have opposing timelines and metrics of success. VCs look for rapid ROI, while Government contracts look for alignment with complex policy mandates that are sometimes decades in the making.
2) Regulatory environment for healthcare technology doesn’t coincide with VC’s expectations to see ROI (return on investment) yesterday. Government grants are not typically focused on moving incubation stage ideas into go to market/commercialization phase, thus their lack of concern about sitting in stage gate approval purgatory.
3) Cultural clash. Allbirds sporting Silicon Valley players are typically not hanging out in the same circles as badge-wearing government policy wonks. Staying in separate sandboxes leads to missed opportunities to align on goals, share resources, and just play together!
Based on my experience in the health care PPP space, my conclusion is that as a collective industry we need more venues to bring together disparate groups of investors to deliberate meaningfully on co-investment. There may be a fleeting moment where say, an MD from an established VC finds herself on the same panel as the PPP lead from USAID. It’s very likely that some shared, good intentions will be thoughtfully discussed. They may even have some overlapping examples of investments in similar geographies or technologies. But those good intentions of actually figuring out a plan to get past the known blockers to make both private and public dollars go farther fizzles out by the time each panelist is on their respective flights back to San Jose and Washington DC.
We need both VCs and federal agencies to align their funding priorities and strategies prior to fund distribution. A coordinated funding approach could lead to some great ideas getting a longer runway to try, fail, improve and actually get it right. The outcomes could mean dollars saved and increased money earned for investors in both public and private arenas.
Who’s up for talking about these potential collaborations further? I’m proposing a working group with VCs in the healthcare tech space and public sector funders to have some targeted, coordinated conversations to strategize next steps. Please reach out to me at Dhevi.Kumar@gmail.com if interested.