During a recent panel discussion at the Nutra Healthspan Summit in London, leading investors shared insights on unlocking funding opportunities in a sector that is experiencing both tighter capital flows and a surge of innovation marked by technology advances and R&D into novel ingredients.
“The money was flowing everywhere, and we were able to actually finance or invest in companies that didn’t have that clear path to profitability, but they were grounded in science,” said Alice Ko, investment partner at Joyance Partners. “Today, we are all looking for companies that have a clear roadmap to profitability and that they are able to actually sell their product and have a credible business model.”
Panelists emphasized that while they want to contribute to building successful companies, these ventures must also generate returns because investment funds must themselves raise funds repay their own investors.
“We have to give back to our investors at least three to five times the money that they give us,” Ko added. “So, we need to find these groundbreaking innovations that have layers of defensibility and that they are able to actually become profitable in a short time. If they have higher margins, the better, of course, because then, of course, our exit potential will be better.”
A changing funding environment
Ara Abrahamian, managing director at Once Ventures, noted that though there has been a certain pick up in AI and tech investing, venture capital activity in the consumer health space is still fairly suppressed.
“Five years ago, tech investors were coming into consumer health and investing in consumer health and food tech,” he said. “A lot of that has pulled out of the market and the overexuberance has subsided a little bit.”
Just a few years ago, many companies in the space could rely on branding, marketing and hope rather than real science. Interest rates were also significantly lower.
Many of these initial ventures could not develop a healthy foundation for long-term growth, but they did contribute to fueling a proactive consumer health movement and market.
Panelists acknowledged that with aging populations worldwide, this potential healthy aging market has become much larger, but that in addition to showing sufficient short-term growth, companies must provide venture capitalists with long-term incentives beyond the hype.
“I do think that right now longevity, especially with regards to healthspan, is on the rise and risks becoming a bit of a fad, so we have to watch out for that,” said Bart Van Hooland, managing partner at Thia Ventures. “The good thing about that is that it is actually making people who are healthy today be more active in their health, so it’s helping to grow consumer health and what we call proactive health market overall—based on science, but based also on that current wave.”
Perhaps the greatest challenge in this maturing market is figuring out how to garantee a credible path to revenue or exit in a space that still requires a fair degree of extrapolation despite recent advances in wearable devices, testing tech and biomarkers.
Marc-Antoine Olive, operating partner at Feast Ventures, said that as an early stage investor, his company is looking for investments that already show enough growth but have long-term promise, with sufficient value in the lifetime of the fund. He noted successfully combining evolving science and market opportunity as key challenge for his fund.
“How do we combine the strong science with a compelling consumer story, right?” he asked. “How do we combine medical evidence with brand desirability?”
Differentiation in the healthspan market
To attract investment, panelists highlighted specific health area opportunities like a burgeoning women’s health category and a promising microbiome personalization market.
As Olive noted, in any growth category, differentiation comes from not only ensuring science-backed claims in the early funding stages but being able to translate these to consumers and to market.
“We look at this basic evidence, but we also look at speed to market because we can’t have it all as early stage, right, by definition, so we also look at startups that take this first-mover advantage and just get on the market,” he added.
First movers might take a more pragmatic approach of launching combination formulations with already proven ingredients, where as as Abrahamian noted, interpreting science relevantly to consumers may be the only differentiator for recombination products already familiar to buyers and easily tweaked by competitors.
“For investors, it is very risky to invest in a company that’s blending formulas from ingredient suppliers,” he added. “Someone else can come with a slightly different formula and maybe beat you with a better branding or better marketing.”
In later funding rounds, Abrahamian emphasized the importance of IP and enough clinical data to stand out from competitors.
“In the field of longevity, most of the products being offered in the space are at a fairly premium position, or expensive products, so it’s difficult to convince consumers to take a product if you’re not sure if it’s going to work or doesn’t not provide an immediate benefit,” he said. ”You have to have that clinical evidence by the time you’re into Series A or Series B funding.”
And, where there is not enough IP and the science is still evolving, panelists said it is important to spend time with founders to make sure they have a roadmap in mind.
“We’ll never have enough when it’s early-stage, but if the team really has a good scientific background, has a good advisory board on science, and they show you the roadmap on how they want to get there, as an early investor, you feel more confident,” Olive said.
Van Hooland acknowledged enormous opportunity in the field but pointed to headwinds in a category where healthspan and its science where finding the right investors will be more complicated.
While there does still seem to be a sweet spot for companies driving real data-driven innovation, panelists agreed with him that in the past, the investment made in a period of exuberance, many of the technologies, products and even markets were “not venture-capitalist backable.”
“I think that as investors we are getting very skeptical with all of these supplement companies because everyone is trying to get a share of the buy,” Ko said, noting that without differentiation, it is not possible to build a moat that allows for sustainability in the long run despite promises of high initial margins.
