Martin faced a setback in his life when he and his wife tried to start a family. Shortly after their marriage, 31-year-old Nina discovered she was dealing with infertility challenges. For this reason, in 2015 Martin founded Prelude Fertility/Inception now the largest chain of fertility clinics in the USA. Two years later he also founded Overture Life, focused on automating the embryology lab.

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Let’s take a look at the key points that are the pillars of his investment strategy:

Investment Strategy Key Points:

1. Fertility, Longevity, and Healthspan: Invests in companies that extend human lifespan and improve quality of life.

2. Early-stage Investments: Often invests in early-stage startups with high growth potential via Martin Varsavsky's early-stage investment fund, VAS Ventures.

3. Cross-disciplinary Approaches: Prefers companies that combine biology, technology, and data science.

4. Global Reach: Investments are not restricted by geography, though there is a significant presence in North America and Europe.

Companies Invested In

1. Gameto

• Total Funding: $73 million

• Industry: Fertility

• Description: Gameto is a biotech company focused on using cell engineering to develop therapeutics for diseases of the female reproductive system. They aim to address issues related to menopause and reproductive longevity.

I like how Gameto is innovating in cell engineering to address menopause and reproductive longevity, targeting significant unmet needs.

2. Prelude Fertility

• Total Funding: $200 million

• Industry: Fertility

• Description: The Prelude Network is the fastest-growing network of fertility clinics and the largest provider of comprehensive fertility services in the U.S.

Despite being the largest provider in a growing market with stable revenue potential, Prelude Fertility faces high operational costs and increasing competition.

3. Overture Life

• Total Funding: $52.4 million

• Industry: Fertility

• Description: Overture Life is a clinical-stage biotechnology company focused on automating assisted reproductive processes to enhance IVF outcomes. Its innovative technologies standardize fertility treatments, simplifying techniques and optimizing resources to make reproductive care more affordable, reliable, and accessible.

Automation and non-invasive techniques could revolutionize IVF outcomes, reduce costs, and increase success rates.

4. Aura Bioscience

• Total Funding: $381 million (NASDAQ:AURA)

• Industry: Oncology

• Description: Aura Biosciences is a clinical-stage biotechnology company developing virus-like drug conjugates (VDC), a novel class of therapies, for the treatment of multiple oncology indications.

Aura Biosciences' innovative VDC technology targets multiple oncology indications, offering strong potential for disruptive cancer treatments.

5. Motiv

• Total Funding: $25.7 million

• Industry: Preventive Health

• Description: Motiv is a wearable technology company focused on designing products that fit seamlessly into people's lives and keep them living better. Motiv’s first product, Motiv Ring, is sold internationally, in Europe, Asia, the Middle East, Australia and New Zealand.

Motiv is an interesting business, but it faces high risks such as intense competition and dependency on consumer adoption.

6. Jawbone Health

• Total Funding: $65.5 million

• Industry: Primary Care

• Description: Jawbone Health is at the forefront of revolutionizing primary care for millions of patients worldwide.

7. Braid Health

• Total Funding: $12 million

• Industry: Healthcare Diagnostics

• Description: Braid Health is redefining the landscape of healthcare diagnostics with its innovative approach to real-time radiology and medical imaging. The company provides healthcare professionals with the tools they need to deliver immediate, high-resolution diagnostic results.

Braid Health offers the right product at the right time, addressing the growing demand for advanced diagnostics.

8. 23andME

• Total Funding: $1.1 billion (NASDAQ:ME)

• Industry: Genetics

• Description: 23andMe, is a leading consumer genetics and research company. 23andMe has created the world’s largest crowdsourced platform for genetic research.

Despite the data breach lawsuit, for which 23andMe reached a settlement this week, it remains a leading consumer genetics and research platform with a strong brand and significant market presence.

9. Forward

• Total Funding: $325 million

• Industry: Preventive Health

• Description: Forward is a startup redesigning the way we deliver healthcare using all the technologies healthcare has neglected: sensors, mobile, and AI. The company is funded by some of the world's best investors and entrepreneurs including First Round Capital, Eric Schmidt (Google/Alphabet chairman), Marc Benioff (Salesforce founder), Joe Lonsdale (Palantir founder), Joshua Kushner (Oscar co-founder) and Garrett Camp (Uber co-founder).

Forward is on the right track by emphasizing preventive health with innovative technologies.

10. Daye

• Total Funding: $17.1 million

• Industry: Fem-tech

• Description: Daye is a gynecological health company that creates products and services for vaginal treatment. The company started with the invention of the world’s first pain-relieving tampon, designed to support the 90% of women who experience menstrual cramps.

Daye offers a unique product addressing menstrual cramps, with significant market potential and opportunities for product diversification.

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Portfolio Analysis

Martin’s portfolio includes a mix of early-stage startups and established companies, all pushing the boundaries of science and technology in healthcare. This diversification aims to balance risk and potential returns by investing in both established and emerging companies with innovative technologies.

Overall Strengths:

• Innovation Potential: These companies are at the forefront of technological advancements, offering high growth potential.

• Market Demand: Addressing critical and growing healthcare needs, such as fertility, oncology, and preventive health.

Overall Risks:

• High R&D and Operational Costs: Many companies require substantial investment with uncertain returns, especially those in the early stages.

• Regulatory Challenges: Strict regulatory environments can delay or impede progress across various sectors.

• Market Competition: Intense competition necessitates continuous innovation and market adaptation.

+ Health-tech is good

👉 Inside Patient21 Strategy

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The digital health sector has seen some shifts, with funding and deal volume seeing noticeable reductions in 2023. However, it's not all gloom and doom. Investors are showing their support for startups venturing into novel treatment approaches and addressing nonclinical workflow challenges. Despite a few high-profile IPO flops, the overall performance of the digital health sector in the public market has stabilized.

In 2023, biotech & pharma emerged as the winner of sector trends.

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Let's explore which investors played a pivotal role in shaping early-stage (Seed - Series A) health-tech deals in Europe in 2023:

1- EQT Life Science & EQT Group
HQ: Amsterdam
Health-tech / Life Science deals: 197

EQT is a global investment firm with an extensive international footprint, engages in investments across various projects, companies, stages, and verticals. Operating under the umbrella of EQT, EQT Life Science serves as its Europe-based arm, specializing in direct investments in innovative life sciences and healthcare companies. Having successfully raised over €3 billion, EQT Life Science has invested in more than 190 private companies. The dedicated team comprises highly experienced investment professionals with diverse backgrounds in medicine, science, and industry.

2- High-Tech Gründerfonds
HQ: Bonn
Health-tech / Life Science deals: 175

HTGF is a German seed investor focusing on tech start-ups with substantial growth potential. HTGF currently oversees approximately 1.4 billion euros through its fourth fund. More than just a financial investment, the fund provides invaluable guidance, aids in scaling businesses by fostering connections with customers, enhancing sales efforts, and delivering industry-specific insights. Additionally, they contribute expertise in leadership, management, and operational excellence, aiming to drive sustained success for their portfolio companies.

3- Sofinnova Partners
HQ: Paris
Health-tech / Life Science deals: 121

Sofinnova Partners is a leading venture capital firm specializing in life sciences investments, focusing on healthcare and sustainability. Operating from offices in London, Milan, and Paris, they employ a comprehensive approach across six investment strategies to support companies at various growth stages:

1. Sofinnova Capital Strategy: Serves as a founding and lead investor in early-stage biopharma and medtech start-ups.

2. MD Start Strategy: Acts as Sofinnova's in-house medtech accelerator.

3. Sofinnova Crossover Strategy: Supports innovative later-stage biotech and medtech companies, facilitating their journey to full potential.

4. Industrial Biotech Strategy: Seeks early-stage investments with a positive impact on sustainability in chemicals, agriculture, food, and materials.

5. Sofinnova Digital Medicine Strategy: Backs early-stage startups at the intersection of biology, data, and computation.

6. Sofinnova Telethon Strategy: Focuses on early-stage projects to showcase the best Italian science on the global stage.

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Take a look at the full list of VC funds by following this link 👉 bit.ly/490sAZ7

4- Calm/Storm
HQ: Vienna
Health-tech / Life Science deals: 76

Ranked among the most engaged health investors in Europe, Calm/Storm, an Austrian venture capital firm, maintains its commitment to supporting innovative startups. With a particular focus on femtech, tabootech, and female founders, the firm continues to invest in ventures like Fertifa, a reproductive healthcare platform, Doctorly, a startup specializing in medical practice management software, and inne, a hormone tracking startup.

5- NLC
HQ: Amsterdam
Health-tech / Life Science deals: 72

Established in Amsterdam in 2015, NLC is a healthtech venture builder with four funds. The most recent one, the NLC Health Impact Fund, achieved a first close of €20m in June 2023.

6- Mercia Ventures
HQ: Henley in Arden
Health-tech / Life Science deals: 68

Mercia stands out as one of the United Kingdom's most prolific venture capital investors, providing venture capital investment opportunities of up to £10 million.

7- Seventure
HQ: Paris
Health-tech / Life Science deals: 68

Seventure, an active French venture capital fund, operates across digital technologies, life sciences, nutrition, and the blue economy, with offices in Switzerland, France, and the UK. The life science arm, established in 2001, focuses on pioneering biotechnological investments, particularly in agro-food companies promoting health benefits. Presently, their primary emphasis is on microbiome applications, identifying it as a key area for future development with substantial opportunities for new medicines. Seventure supports companies in various stages, ranging from seed ventures to late-stage enterprises, investing €1-10 million per financing round and up to €20 million per company across multiple rounds.

8- Eight Roads
HQ: London
Health-tech / Life Science deals: 50

Eight Roads Ventures is a global venture capital firm managing $11bn of assets across offices in the UK, China, India, Japan, and the US. The Europe & Israel Ventures team focuses on scaling up technology companies in sectors like technology, fintech, and healthcare, helping them achieve global expansion.

9- Nina Capital
HQ: Barcelona
Health-tech / Life Science deals: 46

Nina Capital, headquartered in Barcelona, operates across Europe and extending their investments to the United States, Canada, and Israel. Nina Capital primarily targets preseed and seed-stage investments, occasionally participating in series A rounds and providing potential follow-on support up to Series A. They offer investment ticket sizes ranging from €150.000 to €1M

10- Seedcamp
HQ: London
Health-tech / Life Science deals: 30

Seedcamp, headquartered in London, is an early-stage venture capital firm with a global investment focus. Seedcamp's investment spans various sectors, including software, hardware, marketplaces, fintech, healthtech, and AI/ML. Their extensive network of investors, mentors, and experts provides valuable support to portfolio companies. As a first-cheque investor, they typically invest between $350.000 to $1M in founders at any stage of product development.

Venture deal value in 2023 landed at €57.1 billion, 45.6% lower YoY.

VC deal activity in Europe as of December 31, 2023. Source: PitchBook

Suggestion? Critiques? Send your feedback in this link or reply to this e-mail. 🙁 😐 😍

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+ Health-Tech innovation is good

Martin

P.S. I used some of the following sources to obtain the data for this article:
(1) Crunchbase (2) Seedtable (3) Dealroom (4) PitchBook

P.S. (1) The ranking is based on the total number of deals within the portfolio of each VC fund.

*Note: If I'm missing any VC funds and you think I should add them to the list, please DM me here.

But General Catalyst thinks there are better opportunities in having a long-term vision. The VC firm intends to launch an innovative healthcare company (HATCo) that will own and manage a hospital, serving as a testing ground for the technology developed by General Catalyst's portfolio companies ( I love the idea).

The strategy is designed to address two primary hurdles encountered by digital health startups:

Firstly, it often requires several months, if not years, to finalize agreements with hospitals, which is why many companies initially target consumers and employers before engaging with sluggish healthcare systems.

Secondly, as more companies delve into the development of healthcare-related artificial intelligence tools, a significant bottleneck arises in obtaining access to high-quality patient data for training models. This type of data is particularly valuable because it will include not only information about care and treatment, but also outcomes, meaning it provides a much better understanding of what works and what doesn’t in improving patient health.

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HATCo’s mission is to expand access to – and deliver – health and wellness collaboratively, compassionately, and courageously for all people.

The goal is to find a hospital in the $1 billion to $3 billion range because that’s where “the majority of Americans get their healthcare.”

When considering the acquisition of a hospital, General Catalyst faces two alternatives: the purchase of a non-profit hospital, which would require a conversion to a for-profit status as part of the transaction, or the outright acquisition of a for-profit hospital. The firm is likely leaning towards acquiring a non-profit hospital, as there are approximately 3,000 non-profit hospitals in the U.S., which is more than twice the number of for-profit hospitals.

General Catalyst has raised a total of $8.6B across 15 funds, their latest being General Catalyst Health Assurance Fund.

Based on an analysis of Medicare cost data conducted by Ge Bai, a professor of health policy and accounting at Johns Hopkins University, nonprofit hospitals in the United States had a median profit margin of 5.9% in 2021, while for-profit hospitals achieved a margin of 10%. This data indicates that an owner with a focus on cost reduction and operational efficiency could potentially boost profit margins by several percentage points.

I am highly excited about this strategy. In some ways this is breaking new ground for venture capital, which has historically focused on incubating and growing new companies, rather than attempting turnarounds of decades-old institutions.

The contents of this newsletter have the potential to influence those around you. Feel free to share it with anyone you believe might find it interesting.

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+ Tech in healthcare is good,

Martin

P.S. I used some of the following sources to obtain the data for this article:
(1) Generalcatalyst.com (2) Sciencedirect.com (3) Forbes (4) Crunchbase

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For a long time, this normal part of a woman's life has been overlooked, but now it's getting the recognition and attention it should, all thanks to a surge of investments and startups led by influential players in the field:

1. Evernow, a telehealth firm concentrating on offering services for perimenopause and menopause, raised $28.5 million, receiving support from angel investors such as Gwyneth Paltrow, Drew Barrymore, Cameron Diaz, and Othman Laraki, the co-founder of Color.

2. Actress Naomi Watts, in collaboration with biotech company Amyris, introduced Stripes, a beauty and wellness brand that places a strong emphasis on menopause health.

3. Actress Judy Greer became a founding partner at menopause-focused startup Wile with a focus on products for women in their 40s and 50s.

As the world wakes up to the significant impact of menopause on women's lives and careers, employers are rethinking their health benefit offerings, marking a significant shift in how this crucial life stage is being addressed.

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Let the Numbers Do the Talking

According to a recent report by Grand View Research, the global menopause market is projected to surge to $24.4 billion by 2030, marking a substantial increase from $15.4 billion in 2021.

Also, the Society for Human Resource Management reports that nearly 20% of the U.S. workforce, approximately 27 million people, experiences menopause. This life phase's impact on productivity is also striking; around 40% of individuals report that their work performance is disrupted on a weekly basis due to menopausal symptoms. Even more concerning, almost one in five have contemplated leaving their jobs due to these symptoms, as per a survey from Biote. When we expand the perspective globally, the cost of menopause-related productivity losses tallies up to an astonishing $150 billion annually, according to a Frost & Sullivan analysis cited by Bloomberg.

Menopause Solutions Across Sectors

Entrepreneurs and innovators are rising to the occasion, addressing the multi-faceted challenges presented by menopause. A comprehensive landscape analysis by SJF Ventures has identified five (5) key sectors where these solutions are taking shape:

1. Biopharma: Pioneering biopharmaceutical and therapeutic interventions aimed at enhancing ovarian health and alleviating menopause symptoms.

2. Consumer Goods: Offering a wide array of health supplements, personal care products, and sexual wellness aids tailored to the needs of aging women.

3. Digital Technology: Creating innovative platforms for comprehensive menopause management, including symptom tracking, educational resources, and supportive social networks.

4. Medical Devices: Designing wearable devices and other medical innovations that provide relief from menopause-related symptoms like hot flashes and vulvovaginal atrophy.

5. Virtual and Hybrid Care: Transforming the clinical care landscape by providing virtual consultations, medication management, and expert guidance for women navigating the challenges of menopause.

Investing in Menopause Care:

While menopause care is gaining traction in the entrepreneurial and investment spheres, the funding landscape still has room to evolve. Over a span of seven years, from 2015 to Q1 2023, startups addressing menopause care secured approximately $530 million in funding, according to PitchBook and Crunchbase data. Though this figure might seem significant, it pales in comparison to other sectors. To provide context, fem-tech startups secured $1.9 billion in funding in just one year, and digital healthcare companies received a staggering $30.7 billion in the same period.

Of the $530 million invested in menopause care, virtual and hybrid care received about $210 million, and biopharmaceutical innovations garnered approximately $145 million. Interestingly, while biopharma and clinical care have received the lion's share of funding, the majority of companies are innovating in the consumer goods and services realm, followed closely by virtual and hybrid care solutions.

The recent surge in investment and innovation in menopause care shows that attitudes towards women's health are changing for the better. This important phase of life is finally getting the attention it deserves. With entrepreneurs and investors working together, new solutions in different areas are set to completely transform how menopause is dealt with, bringing hope and empowerment to women all over the world.

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+ Better menopause care is good,

Martin

P.S. I used some of the following sources to obtain the data for this article:
(1) Grand View Research (2) SJF Ventures (3) Crunchbase (4) PitchBook (5) Biote (6) Frost & Sullivan

As we roll into Q4 of 2023, the venture market is taking on a fresh outlook after a dynamic start to the year in Q1-Q3. The digital health sector has seen some shifts, with funding and deal volume seeing noticeable reductions. However, it's not all gloom and doom. Investors are showing their support for startups venturing into novel treatment approaches and addressing nonclinical workflow challenges. Despite a few high-profile IPO flops this year, the overall performance of the digital health sector in the public market has stabilized.

In this article, we'll explore the implications of this evolving landscape as investment priorities pivot towards:

1. Disease treatment,
2. Nonclinical workflow, and
3. Value-based care.

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Despite seeing fewer deals and less funding in 2023 so far, by Q3, some clear trends had emerged in the digital health investment landscape. Notably, there was a shift away from the previous focus on on-demand healthcare and life science R&D catalysts, which had been the top investment areas in 2021 and 2022.

Instead, investors started directing their funds toward digital health products and services that support disease treatment, streamline nonclinical processes, and manage complex conditions like kidney disease.

1. Disease Treatment
The funding leaderboard for digital health value propositions was topped by disease treatment, with a total of $1.64 billion raised from Q1 to Q3 in 2023. Some of this funding found its way to comprehensive virtual clinics like Vivante Health, backed by Rock Health, which secured $31 million. Vivante Health offers a one-stop solution, including telemedicine, nutrition coaching, and self-guided modules for digestive health.

2. Nonclinical workflow
Nonclinical workflow solutions claimed the second spot, gathering $1.59 billion in funding during the same period. Players in this field are tackling a wide range of tasks, from managing durable medical equipment, as seen with Synapse Health, which secured $25 million, to handling revenue cycle management, like Collectly, which raised $29 million, and even improving patient scheduling and communication, as exemplified by Keona Health, which received $7 million in funding.

3. Value-based care
Mental health continued to be a top-funded area among digital health startups, with a total of $0.9 billion deployed year-to-date. Interestingly, nephrology gained unexpected attention, raising $0.7 billion in 2023, a significant increase from the mere $54 million raised in the entire previous year. Investments in both these specialties increasingly centered on digital health startups that facilitated value-based care (VBC) arrangements or took on risks themselves. For instance, Better Life Partners, with $26.5 million in funding, has established itself as a leader in value-based care for substance use disorder, mental health, and harm reduction. On the other hand, Healthmap Solutions, backed by $100 million, caters to payers and providers seeking VBC solutions for chronic kidney disease.

As policy initiatives related to VBC gain momentum and major healthcare enterprises delve deeper into VBC models, VBC enablement is becoming a crucial aspect of startups' business strategies and driving collaborations with large enterprises. This shift is particularly noticeable in high-cost therapeutic areas like mental health, kidney care, cardiovascular care, and oncology, which happen to be the top four clinical areas receiving funding in our Q3 2023 analysis.

If a startup can successfully reduce the overall cost of care in a risk-based arrangement, it can provide immense value to payers and other customer organizations. Traditionally, most digital health investors have focused on VBC enablement for primary care. However, there is now a growing interest in exploring the untapped potential of VBC enablement for specialty care needs.

+ Digital Health Funding is Good

Martin

P.S. I used some of the following sources to obtain the data for this article:
(1) Rockhealth.com

The London-based digital primary care provider once hailed as a unicorn, has reached the end of its tumultuous journey. The company has agreed to sell most of its assets to U.S.-based eMed Healthcare through a bankruptcy process, marking the end of an era for a company that was once valued at nearly $2 billion.

A Glimpse into Babylon's Past

Founded in 2013, Babylon Health pioneered an integrated primary care model that utilized remote patient monitoring and an AI-powered healthcare app for diagnosis and video appointments. They also offered a value-based care platform known as Babylon 360.

1. In 2021, Babylon made a significant move into the U.S. market, attracting attention with a SPAC (Special Purpose Acquisition Company) plan worth over $4 billion. This expansion allowed the company to distance itself from ongoing issues in its core business.

2. However, in the U.K., concerns about patient safety and corporate governance had been raised by clinicians for years. In 2021, it was revealed that a U.K. medical regulator had also been expressing these concerns. Despite these issues, Babylon continued to expand its business.

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The Search for a Lifeline

By 2022, Babylon began to face challenges as it lost major contracts in its home market, including a contract with the NHS for the city of Wolverhampton (UK). The company's fortunes continued to deteriorate.

3. In 2023, Babylon began seeking a buyer, with Swiss health tech startup MindMaze showing interest. However, the acquisition talks were plagued by uncertainties, and Babylon's shares were delisted from the New York Stock Exchange during negotiations. The acquisition ultimately fell through in August.

4. Babylon then shifted its focus to finding buyers for its assets, putting its U.S. business in Chapter 7 insolvency.

The Financial Collapse

Babylon's rapid expansion in the U.S. market over 18 months came at a significant cost. The company reported a staggering net loss of $221 million on $1 billion in revenue in 2022. By May of the following year, its first-quarter losses had doubled compared to the previous year, reaching $63 million. These financial woes played a crucial role in Babylon's downfall.

While evaluating the business case, certain questions arose in my mind:

1. In what way could a healthcare company with assets scattered worldwide offer any form of lasting or enduring value?

Maintaining focus is exceptionally challenging in a world marked by irrational valuations and an abundance of capital, yet it remains absolutely essential.

2. What was the effectiveness of the acquisitions of Meritage Medical Network and First Choice Medical Group in 2021, with the intention of expanding in the USA, considering that 18 months later Babylon was seeking a buyer for the IPA business in California?

   IPA is a network of approximately 1,800 physicians providing physical care in California. Babylon grew it from $111m in 2021 revenue to over $400m in estimated 2022 revenue.

   

The capability to acquire patients and quickly expand gross revenues should be counterbalanced by adeptly managing and controlling medical expenditures.

3. How trustworthy is it to present adjusted EBITDA margin in a business case involving a company like Babylon Health?

The adjusted EBITDA metric is particularly valuable when assessing a company's worth in various transactions, such as mergers, acquisitions, or fundraising efforts. For instance, if a company's valuation is based on an EBITDA multiple, the value could undergo substantial alterations following the inclusion of add-backs.

What's at stake in Babylon Health's situation? The primary risk lies in the nature of these adjustments, which typically encompass various types of expenses that are reintegrated into EBITDA. As a result, the resulting adjusted EBITDA often portrays an elevated earnings level due to the reduction in expenses.

eMed's Acquisition

eMed Healthcare has acquired most of Babylon Health's assets, and while the company's future plans remain uncertain, it is expected to keep the acquired business operational. eMed itself started as a startup and was backed by investors like Bessemer Ventures Partners, SV Health Investors, and Credit Suisse.

GP at Hand, an app and service powered by Babylon that can be selected by U.K. residents as their primary health practice, is not a part of the sale, nor was put through any insolvency process, a spokesperson said. It’s still operational. (According to the site, it appears that three partners — Dr. Stephen Jefferies, Dr. Matt Noble and Rita Bright — are the primary owners of it.)

The Broader Lesson

The demise of Babylon Health serves as a cautionary tale for investors and a reflection of the volatile nature of the digital health startup landscape. In today's funding environment, Babylon will likely not be the last digital health startup to falter. As the cost of capital and funding opportunities evolve, many of these companies, often operating without profitability or substantial revenue, may struggle to sustain themselves. Unicorn status can be fleeting, and the story of Babylon Health reminds us that even the most promising startups can face a harsh reality check.

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+ Camels 🐫 startups are good,

Martin

P.S. I used some of the following sources to obtain the data for this article:
(1) TechCrunch (2) www.babylonhealth.com

This article serves as a follow-up to my initial piece on The Gut-Brain Connection

Venture capitalists renowned for their successful investments in SaaS, Fin-techs and Marketplaces are now redirecting their attention and capital towards a potential new frontier: companies specializing in probiotic pills, plant extract-filled capsules, and other nutritional supplements. With the gut biome increasingly linked to a wide range of chronic diseases, including depression, obesity, diabetes, and cancer, these investors are recognizing the vast untapped potential of microbiome technology.

In 2007, the Human Microbiome Project (HMP) embarked on a mission to unravel the complex role microbial flora plays in human health and disease. Over the course of a decade, through two distinct phases, the HMP meticulously collected, sequenced, and catalogued the genetic material of bacteria obtained from nearly 250 individuals in good health. These groundbreaking efforts showcased the undeniable impact of the microbiome on our well-being and propelled the subject into the forefront of scientific and entrepreneurial exploration. Since then, startups and investors alike have flocked to this exciting space, eager to seize the myriad opportunities it presents.

As mentioned in my article on innovations in the gut-brain connection, the market projections solidify the compelling nature of microbiome tech investment. The global market for the human microbiome is expected to reach a staggering $3 billion by 2029, reflecting a wealth of opportunities for those willing to venture into this rapidly expanding landscape. Additionally, the projected market value of probiotics, a key component of the microbiome industry, is set to soar to an astonishing $123 billion by 2030.

Venture Capital Investment

The majority of funding rounds in the microbiome sector have predominantly taken place at the seed or early stage, with median deal sizes averaging a modest $4 million in the previous year. Additionally, the startups raising funds in this space typically have relatively low median post-money valuations.

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Microbiome funding rounds have primarily concentrated in North America and Europe, with these regions leading the way in investment activity. However, there is a notable rise in the number of funding rounds occurring in the Asia Pacific region, indicating a growing interest and involvement in the microbiome sector.

When identifying investment in this space, there are three primary sectors:

• Digital Solutions

• Probiotics & Tailored Supplements

• Home Testing & Personalized Nutrition

16 Venture Capitalist supporting Microbiome Tech Startups

1. Bold Capital Partners: Invested in Seed Health & Viome

2. Threshold Capital: Invested in Salvo Health

3. Sequoia Capital: invested in Pendulum

4. Indie Bio: Invested in Sun Genomics

5. Founders Fund: Invested in Seed Health

6. Koshla Ventures: Invested in Viome

7. Balderton Capital: Invested in ZOE

8. SOSV: Invested in Sun Genomics and others as AnimalBiome

9. Flight Fund: Invested in ZOE

10. Accel: Invested in Digbi Health

11. Voima Ventures: Invested in Alba Health

12. Accomplice: Invested in ZOE

13. 7wire Ventures: Invested in Vivante Health

14. Felicis Ventures: Invested in Pendulum & Salvo Health

15. Artis Ventures: Invested in Seed Health

16. 8VC: Invested in Seed Health

Corporate Investment

Johnson and Johnson Innovation – JJDC has emerged as a prominent corporate investor in the microbiome startup arena, actively participating in 11 deals within this field over the past decade. Notably, in the previous year, the venture arm demonstrated its commitment by backing Locus Biosciences' series B funding round, which successfully raised $35 million. Locus Biosciences specializes in the development of precision medicines targeting bacterial infections and microbiome-related diseases, aiming to combat the rising threat of antimicrobial resistance.

With the numerous benefits of probiotics for digestion, including improved immunity, gut health maintenance, weight management, and the prevention of obesity, the industry is poised for significant growth in the coming years. The increasing awareness of these health advantages is expected to drive demand, particularly as consumers embrace plant-based diets due to the rising trend of veganism. In response to these market dynamics, many industry players are introducing plant-based probiotics to expand their consumer base.

From a business perspective, probiotics and other supplements possess two key advantages that commonly attract venture capitalists:

Firstly, they offer a dependable source of recurring revenue, as people incorporate daily supplement consumption into their routines or food manufacturers utilize them as additives for insulin control, improved digestion, or weight loss purposes.

Secondly, the supplement industry enjoys a regulatory environment that is less stringent compared to pharmaceuticals. While supplement ingredients must meet safety standards and manufacturers are prohibited from making unsubstantiated claims of superior effectiveness, supplements do not undergo the same rigorous approval process as pharmaceutical drugs.

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+ endurance is good,

Martin

P.S. I used some of the following sources to obtain the data for this article:
(1) Globalventuring.com (2) Human Microbiome Project (3) Pitchbook (4) Crunchbase

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1. Funding Trends: In H1 2023, U.S. digital health startups raised $6.1 billion across 244 deals, with an average deal size of $24.8 million. However, compared to Q1 2023, Q2 saw a decline in funding, with only $2.5 billion raised across 113 deals. This trend indicates a smaller funding year compared to previous years.

   

2. Decrease in Investor Participation: The number of investors participating in digital health deals has also decreased. In H1 2023, 555 investors participated, down from 775 in H1 2022 and 832 in H1 2021. This suggests that generalist and crossover investors are moving away from the sector, leaving a smaller group of focused digital health investors.

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3. Challenges for Startups: Many digital health startups are facing challenges in the new funding environment. To avoid down rounds and maintain valuations, some startups are raising capital without publicly labeling the rounds. In H1 2023, 41% of funding deals were unlabeled, indicating a tactic to protect valuations. However, this approach is seen as a short-term strategy.
   

   

4. Mega Deals and Investor Confidence: Despite the overall decline in funding, H1 2023 witnessed several mega deals, with 12 deals comprising 37% of total funding. Investors are making big bets on companies they see as promising, especially in areas such as value-based care, non-clinical workflow, and at-home care. Some investors are also incubating startups to increase their chances of success.

   Many of H1 2023’s mega deals clustered around one of three digital health transformation areas: (1) value-based care enablement (Strive Health; $166M, Arcadia; $125M, Vytalize Health; $100M); (2) non-clinical workflow and practice management (Shiftkey; $300M, ShiftMed; $200M, MedShift; $108M); and (3) at-home care (Author Health; $115M, Monogram Health; $375M).

   

5. Acquisition, Sunset, and Asset Sell-offs: Due to the challenging funding landscape and a frozen IPO market, startups are considering acquisition offers. However, the number of acquisitions has decreased compared to previous years. Some startups have chosen to sunset their businesses, while others have had their assets acquired and relaunched by other companies. H1 2023 averaged just over 12 acquisitions of digital health startups each month, down from more than 15 M&A deals per month in 2022 and 14 M&A deals per month over the past five years.

   

   For companies that aren’t offered or interested in a purchase bid, the time may come to sell or sunset the business. Beyond the highly publicized bankruptcy of Pear Therapeutics, this half saw digital health startups including SimpleHealth, The Pill Club (also known for a select time as Favor), Hurdle, and Quil Health close their doors.
   Other digital health startups are gaining second lives through asset acquisitions and relaunches. Pear’s prescription digital therapeutics (PDT) assets, for example, were distributed to four buyers. More straightforward asset transfers include Twentyeight Health’s acquisition of SimpleHealth customers in the reproductive care and sexual wellness space, Transcarent’s purchase of 98point6’s AI-powered virtual care platform and care business, and ThirtyMadison’s purchase of the assets of online birth control clinic, The Pill Club.

This reset offers an exciting opportunity for the digital health industry to gain fresh insights and adopt a more focused approach. Despite the challenges it may pose, these tough times can serve as a necessary market correction, aligning innovators and investors with more realistic expectations.

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Martin

P.S. I used some of the following sources to obtain the data for this article:
(1) Rock Health (2) Crunchbase

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