How COVID-19 Changed the Way We Approach Healthcare Investing
Without question, COVID-19 has brought on an unprecedented level of uneasiness and worry for many. As investors, we like (and need) to have at least some foresight into how our founders will navigate turbulent markets and achieve success. However, the virus quickly took away that foresight and left us blind to what the future might hold.
At Jumpstart, we made the decision that, while we were facing uncertainty, we needed to push forward and continue making investments in early-stage healthcare entrepreneurs. The need for healthcare innovation has never been greater and we knew that our role as an early-stage healthcare investor was more important than ever.
COVID-19: Innovation Inspiration
As we watched many of our existing portfolio companies pivot their solutions to serve providers and patients affected by COVID-19, we noticed that JSF applicants were doing the exact same. These brilliant companies were going into their applications and updating how their solution could play a role amid COVID-19, how their Total Addressable Market had increased, or how their “go-to-market” plans had shifted. We were in awe of how quickly these companies were stepping up to help healthcare workers and applying their innovative solutions to mitigate the spread of the novel coronavirus.
However, we started seeing a clear distinction between companies that had actually hit upon a true market opportunity and those that were just using “COVID-19” as a buzzword (just like companies were using “blockchain” in 2017). So instead of getting riled up by buzzwords, we turned to what we know best… what we base our entire investment thesis off of…
“Industry first” pain points. Real, identified problems that industry leaders have expressed to us. As we were reviewing applications, we asked ourselves the following questions:
What had the HC industry been struggling with before COVID-19?
Would that pain be amplified by the escalating situation?
What minor pains would be ignored or forgotten about during COVID?
These questions allowed us to focus on companies that would not only solve an immediate problem but would remain relevant in the post-pandemic landscape.
Investing During a Global Pandemic
We have tons of great resources that help us think through and plan around various scenarios but no one can predict the future with complete accuracy. We wanted to be sure to invest in companies that had the bandwidth to stay afloat in tumultuous terrain for an extended period of time should they need to. We were looking for cash-stable businesses. Companies that had raised a little bit of money, were able to significantly reduce burn, or were generating enough revenue to continue operations.
As early-stage investors, we do not expect all of our applicants to be revenue generating, however, we do expect entrepreneurs to have control over their burn. This was a major focus for us this year. We needed to know that the companies we were investing in would be able to not only survive the long sales cycles that exist in healthcare, but also remain operational amidst all the uncertainty of COVID-19. Hyper-growth companies are fun and we love them but this time, we really focused on the stable, steady performers that don’t rely on near-perfect market and/or fundraising conditions to succeed. COVID-19 had a major influence on how we vet companies during the crisis and it will likely leave a lasting impact on how we select JSF portfolio companies and founders moving forward.