Navigating the HealthTech Frontier: MEDKAP’s Investment Thesis and Focus

In the rapidly evolving landscape of Healthtech, MEDKAP is committed to nurturing groundbreaking innovations by strategically investing in early-stage startups. Our investment thesis is meticulously crafted around a deep understanding of the market, a strategic focus on high-potential opportunities, and a commitment to supporting transformative technologies. This detailed report aims to provide our members with insights into our investment approach, highlight the prerequisites we seek in potential investments, and offer a comprehensive look at our key verticals: Medtech, Diagnostics, Digital Health, and Techbio.

Disclaimer: This document is intended to provide insights and facilitate informed decision-making among our members. It does not constitute investment advice. Each member is responsible for their individual investment decisions, and their specific investment theses may vary.

Our Healthtech Worldview

The HealthTech industry is on the brink of significant breakthroughs, driven by technological advancements, an aging population, and the growing importance of personalized medicine. At MEDKAP, we focus on sectors that not only promise substantial returns but also align with our core values of innovation, impact, and sustainability.

Our primary focus areas are:

• Medtech: Companies developing medical devices and equipment that enhance patient care and healthcare delivery.
• Diagnostics: Innovations in diagnostic tools and techniques that enable earlier and more accurate disease detection.
• Digital Health: Solutions leveraging digital technologies to improve healthcare delivery, patient engagement, and clinical outcomes.
• Techbio: Technology-driven biology companies applying engineering principles to biological systems for laboratory research and drug development.

Key Investment Prerequisites

Across all verticals, we adhere to a set of stringent criteria when evaluating potential investments. We seek startups that exhibit the following characteristics:

1. Strong Team: We prioritize startups led by experienced and passionate teams with a proven track record. We particularly value two types of founder groups:
   1. Post-Doc Graduates: Graduates from top universities, such as ETH Zurich and EPFL Lausanne, who bring great intellectual property (IP) to the table.
   2. Industry Veterans: Seasoned professionals with “unfair” market insights and networks, offering a strategic advantage.
2. Commercial Focus: A clear path to market is essential. We seek startups with a strong emphasis on commercialization and a well-defined strategy for scaling their innovations. Ideally, there is a commercial co-founder in the team with relevant industry experience. Most importantly, we want to see commercial traction, evidenced by:
   1. Customer interviews that have been conducted and structured properly.
   2. Letters of Intent (LOIs) with purchase intent signed.
   3. Existing revenue.
   4. A clear go-to-market strategy, target customer identification, and a good understanding of the market, payment process, and value creation. The majority of startups underestimate this part and focus too much on product development only.
3. Strategic Exit Targets: Founders need to start with the end in mind and work towards that goal. If it is unclear where the ship is heading, chances are low to find the right destination. IPOs are very rare and not a reliable exit strategy. Setting up an own sales force becomes increasingly unrealistic for startups; hence, strategic partnerships are crucial. Startups must clearly understand the value they can create for one of the big players. We find ourselves in a world where we must play according to established market dynamics. Of course, we also hope that once in a while someone will disrupt the status quo, but with the limited budgets of business angels, this is much harder to achieve.
4. Not Much Dilution: The more diluted an investor gets, the less ownership they have at an exit—so far, so clear. But another topic that plays a role here is liquidation preferences (Liq prefs). Later investors (e.g. large VCs) may want to have their investment back before anyone else gets their return, and the order of return is in the reverse sequence of investments, so the last investor gets their money back first. As business angels usually invest first, this could mean that no money is left after all the Liq prefs, especially if a VC negotiates a certain multiple back on their investment. By the way, the same is true for the founders. Biotech founders often find themselves with less than 5% ownership at an exit. So, the fewer funding rounds there are, the more we can avoid such a scenario.

Vertical-Specific Insights

MedTech

The Medtech sector is characterized by its potential to significantly enhance patient outcomes through innovative devices and equipment. When evaluating Medtech startups, we look for:

• Regulatory Pathway: A clear understanding of the regulatory landscape and a well-defined plan for obtaining necessary approvals.
• Clinical Validation: Evidence of clinical efficacy and safety through robust trials and studies.
• Market Demand: Strong demand for the product, supported by market research and validation from key stakeholders.
• Read more about Medtech here.

Diagnostics

In the Diagnostics vertical, our focus is on technologies that enable earlier and more precise disease detection. Key considerations include:

• Accuracy and Reliability: High sensitivity and specificity of diagnostic tools.
• Speed and Accessibility: Solutions that offer rapid results and can be easily integrated into existing healthcare workflows.
• Cost-Effectiveness: Innovations that provide significant value at a reasonable cost, thereby enhancing accessibility.

Digital Health

Digital Health is transforming healthcare delivery through technology. Our investment criteria for this vertical include:

• Scalability: Digital healthcare is still a young market and reimbursement is limited to some countries. 
• Competitive Advantage: IP protection is much harder for software applications. Hence, startups often need to rely on other aspects, like better market access maybe through a first mover advantage or higher retention rates. 
• Integration: Seamless integration with existing healthcare systems and interoperability with other digital health solutions.
• Read more about this topic here. 

TechBio

Techbio represents the intersection of biology and technology, offering groundbreaking solutions for healthcare. We look for:

• Innovation: Novel applications of engineering principles to biological systems. The use of AI and access to a significant database play a key role here. 
• Scalability: Technologies that can be scaled efficiently to meet growing demand, especially of the big Pharma players. 
• Cross-Disciplinary Expertise: Teams with expertise in both biology and technology, capable of bridging the gap between these fields.
• Read more about Techbio here.

Our Rigorous Selection Process

To identify the right startups, we have a rigorous selection process that involves industry experts who are evaluating the six success criteria: team, traction, market attractiveness, competitive advantage, support network and fundability. However, many critical activities, such as commercialization and exit planning, become more relevant after the startups have received funding from us. Hence, our approach is to build a holistic ecosystem to bring HealthTech innovation to the market and create success stories.

Building a Holistic Ecosystem

At MEDKAP, there are three crucial components in our network, besides the right startups:

• Industry Experts: Our network includes HealthTech entrepreneurs, executives, and doctors who can act as advisors or board members for the startups.
• Commercialization Support: Through our partner organization KAPSLY, we provide commercialization support via their CCO as a Service offering.
• Venture Clienting: We collaborate with corporates to understand their innovation needs and point them in the right direction to find startups that can create competitive advantages for them. The concept of Venture Clienting involves the corporate offering a paid pilot project to the startup to quickly identify the added value of a collaboration. If a startup can deliver on its promises, the chances for a long-term collaboration increase, as does the strategic relevance of that startup for the corporate or one of their competitors.

Conclusion

As you can see, investments are not concluded at the signing of a contract. There are numerous market implications that must be considered. We also aim to create more awareness among founders about these topics when they are crafting their investment strategy.

At MEDKAP, our investment thesis is underpinned by a commitment to identifying and supporting transformative HealthTech startups. By focusing on early-stage companies in Medtech, Diagnostics, Digital Health, and Techbio, we aim to drive innovation and deliver substantial returns for our members. While this document provides a comprehensive overview of our approach, we recognize that each member’s investment strategy may differ. 

We hope this detailed overview helps our members navigate the exciting opportunities within the HealthTech sector and supports them in making well-informed investment decisions. Together, we can foster the next wave of healthcare innovations.