The Internet is filled with advice, market reports, predictions to ensure healthtech entrepreneurs are well-prepared for 2024. Industry experts are hopeful for a better year. There are rosy predictions at every nook and corner.
However, no one talks about what to do if things don’t turn out as pretty as the predictions.
Christina Farr, a former journalist turned venture capitalist (VC), wrote two excellent pieces. One, about resetting VC expectations in healthtech, and another, cautioning healthtech founders about what may be in store in 2024.
We absolutely loved how she shared things that healthtech founders need to know but are seldom discussed aloud.
Here’s a gist of what she discussed so you are well-equipped to handle 2024 👇
Resetting venture capital expectations
In 2023, the healthtech startup landscape faced a challenging funding environment, marked by reduced valuations, down rounds, and some companies even facing bankruptcy. Startups that didn’t raise funds last year are now on the verge of cash burn and will require fresh funds in 2024.
While founders strive to secure funds by attracting venture capital, Farr says, “Not everything and everyone should be backed by venture capital.”
She believes it is time to reset expectations for VC investing, and here’s why:
Disillusionment after a hype cycle
The surge in billion-dollar healthcare exits post-pandemic has spurred heightened expectations among VCs for more such lucrative exits. However, we are in a period of disillusionment after a hype. The reality is that achieving such jumbo exits might not be feasible for many healthtech startups.
Relatively smaller exits are ignored
Large VCs often seek billion-dollar exits. However, there’s a relative abundance of smaller exits in the $40 to $500 million range that aren’t widely celebrated but can still be significant achievements.
Realities of the healthcare industry
The healthcare industry doesn’t always align with the quest for mega-platforms or unicorns. Often, successful companies focus on niche markets or specific services rather than becoming huge platforms. These companies might not fit the venture capital growth model but can still be successful.
Look for alternate funding sources
Farr suggests healthtech founders explore alternate funding sources such as private equity, grants, friends and family, crowdfunding and loans. These may give them capital that aligns with their growth pace and business objectives.
“If you want to build a health tech company, I commend you. It’s not going to be easy, and you probably know that by now. But if you’re in it to win it, you’ll need to surround yourself with capital that gets that.”
– Christina Farr
2024 survival guide for healthtech entrepreneurs
With 2024 less than three weeks away, the internet is filled with rosy predictions. While everyone is making predictions of what might work in 2024, only a few talk about how to go about if these predictions don’t become reality.
“2023 was hard. 2024 may be even harder. I am not a big believer in sugarcoating. Life has taught me that it’s better to face a hard thing with a plan. If you know what to expect, you’re more likely to get through it unscathed.”
– Christina Farr
Farr anticipates a tougher 2024 and foresees increased challenges in securing funding, with an overwhelming number of companies vying for investor attention. She says it’s that cautious time of history when startup founders need to put their best foot forward to survive.
Here’s her practical survival guide for healthtech entrepreneurs:
Accept failure; It’s okay to let go
Farr says it’s time to acknowledge that not all startups will succeed. If the venture doesn’t work out, founders need to learn from this experience and start with a clean slate [they’ll have better experience and network].
Consider mergers as friends
Healthtech startups with feature-based businesses should explore opportunities for mergers as that creates more comprehensive and attractive entities for potential buyers.
Make efficiency the priority
It’s time for founders to adopt lean practices, prioritise essential initiatives, and focus on achieving a break-even point to ensure survival.
Diversify funding sources and have realistic exit plans
Farr says, “Now is the time to explore your options and get smart.” Realistically, assess your startup’s potential for a significant exit. If IPO isn’t a probable outcome, avoid pursuing big rounds at high valuations. Tap into alternative funding sources as discussed above.
Get into short-term survival mode
Unless your startup is not working, Farr suggests it’s time to get into short-term survival mode. Focus on unit economics to prove your business works and withstand tough market conditions. This will buy you time instead of being forced to shut down due to lack of capital.
Think carefully about down-round or structured financing
Whether you accept a down-round or structured financing, both have their pros and cons. Both will have implications for the startup’s future trajectories. So choose the one that fits your bill.
Takeaway
While we’re hopeful 2024 will be a better year, there might still be turbulence. We might not like the headlines that are to come. Farr’s insights offer a crucial roadmap for healthtech founders and ensure they’re better equipped to navigate the challenges in the upcoming year.
We’ve covered the gist of her critical perspective for healthtech entrepreneurs. You can head on to read her in-depth pieces here 👇
