Investing in health shouldn’t be like making lemonade
MedicalDirector’s CEO, Matthew Bardsley, opens up debate around finding the right investment solution that is best aligned with health innovation.
An entrepreneur approaches you and says, “I’m going to start making lemonade, give me $100 and I’ll turn it into $1,000 in two years.” You say, “sure!” And hand over your cash.
You check in 6 months later and ask how it’s all going. The entrepreneur turns around to you and replies, “I’ve made 1,000 bucks already!”
You: “Wow, how much lemonade did you sell?” Entrepreneur: “I didn’t, I went to the casino and I put it on black, and I won.”
Sure, that may seem like a great outcome, but that’s not exactly what you invested for, right? Well that’s the sort of frustration and tension that many analysts in the stock market experience every day, or private equity firms who buy into something, but don’t quite get the outcome they’re expecting.
Understanding the funding sources that drive innovation
When it comes to funding sources, there is a spectrum of funding available to innovators. On one end of the spectrum, you have investment from the Government, which is often infrastructure related. For instance, with the current investment in the tunnel from the city to the Northern Beaches, the Government can justify the multi-billion dollar investment using Government bonds, because of the slow and steady increase in return from economic outcomes, once it’s in place.
On the other end of the spectrum is a self-managed and self-employed person, who is looking at the next opportunity they need to keep their idea growing. Now the behaviour of this individual, compared to the person making the decision on those ten-year Government bonds, is very different. Of course there’s a lot of investment models across that spectrum too, from VC to private equity, to banks, seed capital, angel capital and crowd funding.
Now when you come to technology and innovation, the challenge is finding the right investment solution that is best aligned with your innovation. Otherwise you risk the wrong type of behaviour for that innovation, and set yourself up for failure. For example, if you publicly list a technology company too early in the game, the visibility and accountability is very heavy for a young company that is making test and learn decisions that could be considered risky by the market.
At the same time, if the funding model is trying to do something that it’s not inherently built for, then that could also set you up to fail. For instance, a Government-funded health innovation needs to be robust against cyber-security, with significant consideration towards the social impact and wider public consequences. Such innovative initiatives need to grow slowly and steadily, with these higher values at top of mind.
So the lesson here is to ensure your funding model matches the values that you are bringing into your business idea. And if you mismatch the ideas to those values, you’re going to have trouble.
Getting investment right in healthcare
There’s a place within the healthcare ecosystem for all types and levels of funding, but historically, I don’t feel our industry has attracted all of that value. Understandably, we need to maintain certain barriers of venture capital funding and private equity to ensure compliance and mitigate risk, especially as we’re dealing with the sensitivities of our health. However if those barriers are too high, then we could stifle innovation.
I’ve been fortunate enough to work in a startup and seen the fruits of seed capital, I’ve worked in an ASX100-listed company, so I know what that looks like in terms of having funds coming from shareholders, and now I’ve worked in private equity. And I can really see a big difference between the impact of what it is we can deliver with those types of funds.
If we want to secure the future of healthcare innovation, we need to re-examine the right sort of funds coming into the industry, to support the level of innovation that’s required. Having the right structures in place to attract the right type of capital, for all aspects of innovation, can really light up health technology and pave the way for an exciting future for the industry.
This article was first published in LinkedIn.