Amidst substantial challenges faced by privately held digital health companies seeking funding this year, Bill Taranto, President of Merck Global Health Innovation Fund, shared five key strategies that can significantly enhance their chances of success. Speaking at the Global Corporate Venturing Symposium, London, a leading corporate venturing and innovation event in Europe, Taranto emphasised the importance of these approaches for companies navigating the fundraising landscape.
PitchBook data unveiled by Taranto revealed that in the first quarter of 2023, 10% of all corporate venture capital rounds raised by Europe-based companies were down rounds, marking the highest percentage since 2020. Additionally, CB Insights’ analysis indicated that Europe-based companies raised $10.4 billion during the same period, significantly lower than the $29.5 billion raised in Q1 2022 and the $22.3 billion raised in Q1 2021.
“European startups in digital health and other sectors are facing challenging times, but there are reasons for optimism, particularly for companies willing to reimagine their strategies,” stated Taranto. “Now is the opportune moment to thoroughly evaluate your approach in this environment,” he added.
To increase their chances of weathering the current market turbulence and securing additional funding, companies with less than two years of cash on hand should consider implementing the following five strategies:
- Begin with an Honest Evaluation of the Company’s Position: Companies must conduct a detailed assessment to understand how each dollar spent contributes to building shareholder value.
- Strengthen the Company’s Resilience: Adopting a high-burn and long runway approach is not advantageous during economic downturns. It is essential to limit spending to activities that help the company achieve crucial value inflection points.
- Align with Your Investor Syndicate: Gain a comprehensive understanding of the interests of existing investors and engage with them early on. Clearly identify investors with available funds, decision-making authority, and an inclination to invest in the current market.
- Explore All Alternatives: While dilution may not be ideal, the risk of running out of cash is far greater. Raising a down round could be a viable strategy to ensure the company’s survival.
- Embrace an Optimistic Mindset: Market downturns often act as filters, separating weaker business plans from stronger ones. Companies should be willing to take any necessary steps to strengthen their position.
“Digital health continues to hold immense potential, as do companies that embrace these five strategies,” explained Taranto. “Healthcare systems worldwide still require expanded access to care, increased capacity, cost reduction, and improved patient outcomes. Digital health innovations offer the means to achieve these goals and set even more ambitious targets,” he concluded.