In a challenging funding landscape, privately held digital health companies face significant hurdles. However, Merck Global Health Innovation Fund President Bill Taranto outlined five actionable steps that can enhance their chances of success. Taranto shared these insights with attendees at the Global Corporate Venturing Symposium, London, a premier corporate venturing and innovation event in Europe.
According to PitchBook data presented by Taranto, 10% of all corporate venture capital rounds raised by Europe-based companies in the first quarter of 2023 were down rounds, marking the highest percentage since 2020. In the same period, Europe-based companies raised $10.4 billion, significantly lower than the $29.5 billion raised in the first quarter of 2022 and the $22.3 billion raised in Q1 of 2021, as reported by CB Insights.
“European startups in digital health and other sectors are navigating challenging times, but there are reasons for optimism, particularly for companies willing to rethink their strategies,” emphasised Taranto. “Now is the time to critically evaluate your approach for the current environment,” he added.
To increase their chances of weathering the market turbulence and securing additional funding, companies with less than two years of cash on hand should consider implementing the following five courses of action:
- Begin with a Transparent Assessment of the Company’s Status: Conduct a detailed evaluation of how each dollar spent contributes to building shareholder value.
- Strengthen the Company’s Position: In economic downturns, high burn rates and lengthy runways are not advisable. Focus spending on activities that help the company reach significant value milestones.
- Align with Your Syndicate: Understand the motivations of existing investors and engage with them early. Clearly identify investors with available funds, decision-making authority, and a willingness to invest at present.
- Explore all Options: While dilution is not ideal, running out of cash can be catastrophic. Consider raising funds through down rounds if it ensures the company’s survival.
- Embrace Optimism: Market downturns tend to separate weak business plans from strong ones, enabling robust companies to emerge stronger. Adopt a resilient mindset and take necessary measures to fortify the company.
“Digital health still holds immense potential, and companies that follow these five courses of action can thrive,” Taranto affirmed. “Healthcare systems worldwide continue to require expanded access to care, improved capacity, cost reduction, and enhanced patient outcomes. Digital health innovations are instrumental in achieving these goals and setting even more ambitious objectives,” he concluded.