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How to secure FemTech venture capital?

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Aug 31, 2020

8 min read

Investors weigh in on how to refine, pitch, and evaluate funding partners for women's health tech

For the past few years, the venture capital community has grappled with a public outcry against the limited funds allocated to women founders. In an attempt to correct the disparity, many funds have made a concerted effort to invest in more women founders, resulting in 580 deals worth $3 billion in 2018. But this small uptick—2018 funding for all-women teams still resulted in only 2.2% of all deal activity in the US—overlooks the nuances of the types of companies receiving funds. For femtech companies offering products specifically related to women’s health, the funding landscape remains a complicated one riddled with stereotypes and misconceptions.

Colette Courtion is the CEO of Joylux, a femtech company using red-light devices to treat vaginal tissue and pelvic floor muscles affected by childbirth, menopause, and aging. Her company has raised $15 million. But rather than getting large checks from a small number of healthcare venture capitalists as might be expected, she explains how she has had to raise money incrementally, one check at a time, primarily from her target demographic. “It is hard for men to spearhead this because they can’t get excited about the product, while new female associates don’t necessarily understand what older women deal with. The technology is so new and different that it feels risky and products in the fertility and period space are easier to identify with.”

Since 2008, venture capital investment in the femtech industry has grown by more than $700 million. But the challenges of positioning and pitching a women’s health company—especially to a room of men—have also been well documented. We met with members of the digital health investment community to learn more about navigating the complicated VC landscape. Their perspectives helped us answer three main questions:

  1. Is the ‘femtech’ categorization helpful when pitching to investors?
  2. What is the most compelling way to structure a pitch?
  3. How can founders evaluate prospective funding sources to ensure a positive strategic partnership?

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To ‘femtech’ or not to ‘femtech’

Ida Tin, founder of the period tracking app Clue, first coined the term ‘femtech’ as a way to give investors an avenue for talking about products they otherwise wouldn’t feel comfortable promoting within their firm. The category includes software, services, diagnostics, and products that support women’s health, falling into a number of different areas such as general healthcare, menopause, or pelvic health. While the term’s rapid adoption and buzz make it an enticing pitch opener, it is not without risk. Many have argued that the term creates a broad catch-all, where products of all kinds get thrown into the femtech category, obscuring the business model use case for individual companies.

Tracy Warren, general partner of Astarte Ventures, points to the importance of having a business model that makes money first, before relying on the femtech categorization as a point of differentiation. “My fear is we aren’t being disciplined enough about categorization and requirements for deals, and with a lot of flameouts people are going to dismiss the category as quickly as they started to talk about it.”

Elizabeth Bailey, Managing Director at Rhia Ventures elaborates: “From our perspective, reproductive health is essential health care. I worry the term ‘femtech’ doesn’t adequately capture the rich pipeline of companies and innovations we’re seeing in the broader women’s health space. But I do think it’s been helpful in catalyzing a new category of investments that has been overlooked for far too long.”

Although the term may provide a helpful framing, it shouldn’t be expected to carry additional weight with investors. As Warren explains, “You’ve got to pitch a highly profitable business with rapid growth and a sustaining, recurring revenue model. Those are the things that get any investor’s attention.”

How to pitch a femtech company

Femtech companies have some of the most passionate founders in the tech startup community because the intricacies of women’s health have long been ignored by investors. As such, the personal can inform the pitch unlike any other industry. While passion is a crucial ingredient for any entrepreneur’s success, investors advise that founders keep their pitch focused on the business case and use language that fits their environment.

As Alyssa Jaffee, Vice President of 7Wire Ventures points out, aligning your vocabulary with the pitch setting is key. “When I first had my baby and I was a working woman, another female VC gave me advice and said, ‘don’t say you have to go pump, say you’re nursing.’ There are little nuances like that which I wasn’t previously exposed to. For example, the language I use to explain a deal around postpartum leakage is different from the language I’ve used with my mom and sister. Part of this adjustment has to do with who is in the room when you’re pitching, and part of the adjustment should be to ensure your business model doesn’t get lost amidst the language.”

Medical device venture capital can serve as one example. If your product is a medical device built for women, Warren recommends first breaking down the market, the problems, and the costs to investors: “A lot of the femtech founders are first-time entrepreneurs, which has its own set of challenges. A lot of them are female entrepreneurs, which provides a second set of challenges. And then when you lead with women’s anatomy, you have pretty much given male investors three potential reasons to say ‘No.’ But if you lead with this medical device market, ‘these are the problems, these are the costs, here’s how we fix that.’ And ‘oh, by the way, this happens to be something that addresses vaginal dryness associated with X, Y and Z,’ you get a much different response.”

Starlings CEO and Society of Physician Entrepreneurs Director Rania Nasis agrees: “You should always adjust your pitch based on who’s in the room, regardless of whether your company is in femtech, biotech or diagnostics. If you’re tackling a condition that is not well understood by the public, find a way to break it down into such that the average, non-medical, person might understand it. Also, keep in mind that investors are after returns. Talk about the size of the market and revenue potential. All investors understand numbers, even if they don’t have a deep understanding of the healthcare challenges your startup is addressing.”

Nasis goes on to encourage founders to clearly articulate to investors the customer need that they are solving. “Make sure you’ve done the research into your customer and really understand their problem. What is their biggest pain point and how are they addressing it now? If the answer is they are doing nothing to address it, then the problem is likely not big enough. You want to tackle problems are that are so annoying or painful to the sufferer that they are coming up with all sorts of ad hoc (and inefficient) solutions. A solution that addresses a need is more compelling to an investor than one that addresses a want, especially in healthcare.”

Any good investor will do their due diligence. If a femtech company doesn’t hold to the standards investors use when evaluating other industries or categories within digital health, it will not bring in VC funding no matter how altruistic the product.

How to evaluate investors

The femtech market is expected to grow to more than $48 billion by 2025, indicating a growing interest among investors and a wealth of opportunity for femtech founders. But all venture capital money is not created equal.

Lynn Loacker, the founder of Project W — a national network of entrepreneurs, investors, and executives to help women founders build great companies—works with Dana Kanze, a professor at London Business School to lead a workshop on disrupting bias in the pitch process. Kanze’s research found that both men and women investors tend to ask women founders questions about risk and challenge while asking men founders about growth and opportunity. When seeking healthcare venture capital, femtech founders should be on the lookout for questions from investors that seek to understand their business model. Are the investors conducting due diligence and seeking to understand whether your product falls within a competitive market? Are they interested in the growth potential of your business?

Another thing to look for is whether the investor is interested in helping you grow strategically. Since many femtech products are the first of their kind, unique challenges will present themselves as the company begins to scale. Is the investor interested in setting up a weekly call and getting into the weeds to help with operations? These are signs that the investor is interested in building a long-term funding partnership.

An angel investor and advisor in the space urges founders to consider a prospective investor’s track record and the representation of women within the VC firm. “Look at the companies that specific partner has funded and, even better, where she or he was the lead investor and took a board seat. Are any of these companies led by a woman? If so, talk to those leaders about their experience. What is the composition of the investor’s team? Are any of the GPs women?” While the gender diversity within a firm may not always predict investment patterns, a Kauffman Fellows report found that women VCs lead twice as many funding rounds for startups with a woman founder as compared to men VCs.

Femtech-focused venture capital firms may be one way to build a positive funding partnership. Warren’s company Astarte Ventures focuses on women’s and infant health. Rhia Ventures focuses specifically on women’s reproductive health. “One of the biggest misconceptions about venture capital is that it’s only about the check writing,” shared Bailey. “But in reality, being a good funding partner means bringing resources alongside the financial capital, especially when we’re talking about women’s health startups. With support from the Gates Foundation, we’re building out this type of capacity to help companies with innovations in contraception and other high-impact reproductive health areas. We’re listening closely to our portfolio companies and other early-stage startups about where and how we can help.”

Specialized funds may be more familiar with your product area and able to offer long-term guidance. Any funding partnership, however, should be evaluated based on your company’s goals and whether or not the investor is able to support your vision.

The future of VC for women’s health

COVID-19 has left many industries reeling and the healthcare venture capital space is no exception. While there is plenty of uncertainty, there may also be plenty of opportunity. PwC’s Health Research Institute recently released a report indicating that more Americans are accessing health information in new ways. As people change the way they think about healthcare, now may be the time to launch your femtech product and start thinking about fundraising.

Maria Velissaris, founding partner of women’s health fund SteelSky Ventures says her fund has seen tremendous growth from their portfolio companies that focus on telemedicine, digital health, remote monitoring, and direct-to-consumer platforms. “We set out to invest in the future of women’s healthcare, and the future has arrived,” says Velissaris. “Companies we thought would take years to develop significant traction have accelerated growth in this new post-COVID world.” The company is even more bullish on the segment and is attracting investment into their fund from LPs who were previously skeptical.

Bailey agrees: Rhia Ventures is actively looking for new opportunities in reproductive health that have been bolstered by the pandemic. “If there was ever a year for telehealth, 2020 is it! Perhaps the only silver lining of COVID-19 is that it has advanced telemedicine at warp speed. We were already investing in digital health and telemedicine solutions in maternal health and contraception that help bridge the access divide, particularly for underserved communities. COVID has shined an even brighter light on some of those disparities, but in this environment, access has become an issue for almost everyone.”

Kathrin Folkendt, the founder of Femtech Insider, suggests using this time to network, apply for grants, and start setting the stage for conversations with investors. Working with your development team to make sure your software and minimum viable product is working as smoothly as possible can allow you to test among your target market and set you up for success when you are ready to start fundraising.

The femtech industry faces a unique set of challenges when it comes to fundraising. But it also has a unique opportunity to improve the lives of women and change the healthcare investment landscape. By forging a strong funding partnership, femtech founders can capture much of the anticipated market growth in the years to come.

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