It’s not often that Medi-Vantage repurposes other writing from websites, but this one is valuable since medtech investing, which has been at the cusp of a comeback, could be negatively affected by the Coronavirus. The eleven-year bull market has been exceptional but the uncertainty of the coronavirus, and the potential for a recession, could negatively affect medtech start up funding. Below is our commentary what Anton Simunovic, Chief Investment Officer at Alumni Ventures Group, had to say in his recent article “What’s the Impact of COVID-19 on VC?”:
Startup medical device companies need to know how VCs think
“ This crisis does feel different, given the speed and scope at which this seemingly uncontainable virus has swept the globe. We find ourselves unsettled and disrupted as the virus impacts the way we work, travel, and interact with one another. Above all, care for our families, selves, and communities comes first, and we are encouraging our employees to do the same.”
How does Venture Investing Work in a Downturn?
“As a venture professiona], I see this as a promising time to be investing. Why do professional investors choose to invest in private assets today, while our public markets are trending down? One of the key reasons is that venture returns are largely uncorrelated with the public markets. Past cycles and history show that venture investing is relatively isolated from public markets.
It’s also key to remember this: Irrespective of what’s happening in the public markets, venture is an illiquid asset class with a ten-year horizon. It’s the long-term nature of venture investing into visionary projects that creates the potential for enormous value appreciation, regardless of the market’s cycles.”
What Are Your Contingency Plans?
“Downturns give venture investors more leverage and choice. VCs can often deploy capital at lower valuations, are welcomed into more private deals, and become even more selective with their investment criteria.”
Medi-Vantage comment: This means that medtech start-ups need to revisit their business and funding plans to make them crisp, effective and up-to-date to be sure that new ideas are carried over into pitch decks, business plans and promotional materials.
“AVG actively participates in this reality, as our funds seek to co-invest alongside strong lead VCs who share their selectively culled and negotiated deals.
We also know that a lot of smart venture-backed companies are deep in planning and recalibrating. There’s not a boardroom in this country where venture capitalists aren’t talking to management teams about mapping out contingency plans, extending their cash runway, refocusing on mission-critical projects, ensuring higher ROIs on marketing spend, and doing more with less as it relates to head count.”
Medi-Vantage comment: What are your contingency plans? There are always more then one way to accomplish your goals – what can you do differently, more cost-effectively, doing more with less?
The Role of VC in Economic Recovery
“Lower valuations and more frugality built into the cultures of private companies means that professional VCs play an important, positive, and mutually beneficial role in company building — as will investors in AVG funds.
In fact, some of the world’s most dominant companies were built in times of adversity. Think Google and PayPal weathering the dot-com bust, and Airbnb, Square, and Uber being built out of the bleakness of the global financial crisis. Each of these entities either launched or scaled in very challenging markets. More of these winners will undoubtedly present themselves in this current environment.”
Medi-Vantage comment: Now is the time to re-think strategies, or subject them to outside perspective.
What We’re Doing
““AVG takes the long view, and its investment strategy does not change with market cycles. But now is a good time to reinforce our solid investment practices in these uncertain times: ”
Portfolio first: Some of our companies will need additional financing, and we will look to lean into our winners.
MV Comment: How can your team show early wins, to keep or attract your VC base?
New investments: We will redouble our efforts to access quality investments, led by management teams who have experienced market cycles, backed by steady and well capitalized VCs.
MV Comment: Does your pitch deck resonate that your start up is a quality investment? Is your value proposition clear and crisp?
Lead investor conviction: We will look for rounds led by the conviction of outside fresh capital over safety rounds led by insiders.
Runway: With capital becoming more selective, we will look to back entities with long operating runways and demonstrated capital efficiency.
Line of sight: Management teams that are clinically realistic and able to articulate and execute upon clear and measurable business milestones.
MV Comment: Probably the greatest challenge for a medtech start-up is developing measurable business milestones. We can help—we develop investor decks routinely and see what works, and what doesn’t.
Unique terms: In addition to lower valuations, we’ll look for seniority in capital structures and other structured terms to help protect our investors should the uncertain macro environment persist.
“The key points are to remain disciplined, be judicious in how we invest our capital, and build our companies for enduring success.””
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