need-driven investing DURING A PANDEMIC

and why urgency does not generate needs

AUGUST 2020

by Yahel Halamish

With the tragic outbreak of COVID-19, countries around the world have been experiencing major changes. An unprecedented global health crisis has disrupted everyday life across the world. Fundamentally, our belief is that COVID-19 is here to stay until a vaccine is available. Along with the rest of the venture capital world, we at Nina Capital have spent the past months reflecting on the pandemic’s impact on investments and dealflow trends, and on each of our portfolio companies.

Many have tried to compare the current COVID-19 crisis to the 2008 Global Financial Crisis. We see a significant difference in that the public markets are not showing indications for potential collapse — especially when focusing on the global healthcare market, where many resources were fixated on the pandemic. The public markets have been prolific for healthcare companies, which outperformed all other sectors as of Q2 2020. Investment total for H1 2020 in healthcare companies reached a record amount despite financial uncertainties. Simultaneously, governments and public health stakeholders are allocating more resources to healthcare. All this compounded to accelerate the growth of some startups and listed companies, mainly those focused on increasing efficiency and decreasing contact by providing digital services.

We trust that the stability of the overall healthcare sector during the turbulent times of the pandemic will remain, with some caveats. The growth seen in past years for sectors such as women’s health, which are not dominant in the fight against COVID-19, will slow down: we expect to see a drop in valuations. Relevant sectors such as telehealth are experiencing a surge in the number of deals and in valuations, driven by a sense of urgency. As this sense of urgency lessens, some of the momentum gained in the past month will abate.

Healthcare is historically slow to adopt technological innovation. COVID-19 has forced stakeholders to come up with creative and collaborative ways to expedite adoption. We believe these lessons will have a long-lasting impact.

At Nina Capital, we focus on funding need-driven ventures. We have always operated on the belief that if we stay close to the needs of the healthcare system, we are in a better position to understand which companies have de-risked their technologies and business pillars. Thus the key question for us is, Did COVID-19 create an entirely new set of needs in the health-tech industry? In one word — NO.

The answer might come across as counterintuitive: COVID-19 has challenged the day to day life down to the most basic social conducts. We explain the reasoning behind this statement by focusing on four trends driven by COVID-19:

1. THE NEED FOR DIGITALIZED REMOTE CARE SERVICES — telehealth has become the new buzz word across the industry and has received strong tailwinds in light of the recent global health situation, with the need to provide remote care becoming an imperative for many. H1 2020 has seen a peak in the number of deals and in valuations in the segment. However, the need predates the pandemic, and investments in this segment have grown continuously for years, and in particular since 2018. The pandemic surely exacerbated this need. Today and as always, we are especially interested in novel, deep technologies, coupled with existing models of distribution of health-related services. We look for those that greatly simplify access, decrease costs, and improve the accuracy and provider’s trust in the data acquired remotely by patients and their informal caregivers.
2. THE NEED FOR PERSONALIZED TRACKING — H1 2020 saw a surge in medical device investments driven mainly by solutions that enable remote tracking or diagnosis. However, investments in personal health trackers and tests had been stable in the years preceding the pandemic. We see the recent investment trend and need for this type of solution go hand in hand with the previous ones: COVID-19 rushed investments, numerous startups opportunistically pivoted to grab them, at times trading long term value creation for short term momentum. We remain interested in those serving chronic conditions, especially for populations whose risk profile has been heightened because of the pandemic.
3. THE NEED FOR EARLY DETECTION AND DIAGNOSIS — technologies that increase the efficiency (speed) and reduce workload and error rates when making medical decisions have received heightened attention. COVID-19 created momentum as it generated intensive growth in data in a very short period of time, and reduced barriers to data sharing. But the need for liquidity of quality data that supports solutions providing actionable insights is not new, it has simply been made more pressing by the challenge of triaging and prioritization of patients in today’s world. We always have and continue to look to solutions for efficient triaging and ensuring the right patients have the most expeditious access to treatment.
4. THE NEED FOR IN SILICO CLINICAL TRIALS — decreasing time and money spent and increasing safety and success rate in drug discovery, preclinical work, and clinical trials have been long-standing needs. Yet, COVID-19 has made the need, even more, pressing by introducing numerous challenges (the classic example is patient recruitment — extremely hard during a pandemic). As we keep searching for technologies that answer the need, new considerations such as travel limitations and subject monitoring have come to place, increasing the urgency for in-silico trials and other solutions challenging the way companies in healthcare meet the necessary burden of evidence.

In a nutshell — Needs are unmet problems calling for measurable outcomes. COVID-19 added a sense of urgency to some needs that were fundamentally already there and exacerbated others by virtue of deflecting resources, increasing their complexity, or challenging the must-haves for technologies to truly solve them. While pandemic preparedness remains an imperative, we believe that it is equally important to remain connected to the core of who we are in the face of uncertainty, and not lose sight of areas of investments that are currently experiencing lack of funding.

Nina Capital is fortunate to be well situated to address the unmet needs and pursue new investments, as a young Fund with a recent portfolio and with a distributed team. We have made five investments since Europe entered total lockdown in March 2020, while we have continued to actively work with our portfolio founders. To learn more about Nina Capital visit us at https://www.nina.capital/