Investment in Health Tech project in New Zealand. -- Interview of Mitali Purohit, Network Manager at Icehouse Ventures
Writer: Christiane Zhao
Christiane: During the video interview, you had mentioned “International potential” in venture investment for several times, why you think it is so important from an investor’s perspective?
Mitali: Because for the angel investors or early-stage investors, they are looking at ten to thirty times on Return on Investment. If New Zealand’s technology harnesses the local market only, it is difficult to see the Returns on Investment due to its limitation in geographical spaces. Sometimes it is also hard if you are only limited to the New Zealand and Australian markets. So, given the healthcare technology, medical technology or even simply software development, it requires a lot of investment by locals and overseas, and it is natural to think their services and products should be geared towards an international market. Thus we can get the returns, and you can also have more users from overseas to validate your products.
Christiane: Of course, I strongly agree with your opinion. During our video interview, one of the questions I asked is “Do you think AI-health project has a future in the New Zealand investment market?” You say yes. I have also done some research about it, which makes me not very confident to give a yes to this question. Because we have a relatively low population density, and we also have a public healthcare system. So, do you think it is easier for us, as investors, to say no for an AI-health startup to balance out our risk and return?
Mitali: I agree that the New Zealand market is quite small, but we need a fair amount of data points to develop an AI model that is accurate and useful. You will need data to make sure the algorithm is accurate and working. That’s why we go back to what we said: Does this have global potential ? For instance, a company can partner with companies overseas to develop a product that is accurate, usable and investible. It enables the company to scale up internationally from there. So, when I say yes, I mean this is a market that is worth for investment. However, if it is too local, it is not seen as worth investment. In the case of AI-healthcare, we also got so many different categories. For example, a model can be used to improve hospital admission efficiency. However, in New Zealand, every hospital has different IT systems. So imagine if you develop a similar product for the New Zealand market, it will be hard to launch. As an angel investor, you would like to know if there is market demand for this product. But if every single user is different, you cannot guarantee the technology will be picked up quickly by the majority.
Another thing is the procurement system within each healthcare buyer (hospitals etc). There isn’t much funding/budget available to take up new technologies regularly within hospitals and clinica, and it takes a long time for the system to adopt a new product. In general, if you only look at the AI-healthcare market locally, it is not investible. But if you have something like, say, using Avatars ---- digital human to provide consultancy around mental Healthcare or digital nurses to triage hospital admission, those aspects are more comfortable to develop, as you can generate data quickly, and the product could be adopted globally. So, we shall break down the AI technology application into different segmentations, and then we invest in different areas based on its characteristics and performance. Therefore, it is not just a straightforward yes or no question.
Christiane: Could you please kindly explain the process of applying for funding? As you know, many students might not have many ideas about how it works.
Mitali: The best thing to do is to find the investment group and go over their websites. Look at their investment criteria and see whether it is suitable for your project before you approach them. The New Zealand investment community is very small, and the people are amiable. You can contact their managers of those investment groups or funds. All angel investment grounds in New Zealand are listed on Angel Association New Zealand’s website. In general, you will need an investment presentation which covers the product, its application, market potentials, targeted problems to solve, the approaches to solutions, and more. It will be helpful if you go and chat with those companies before you start your application. Once they have some interests, they will guide you with what they are looking for. Usually, a team is essential for a startup. For instance, there is a medical startup that came to us about nine months ago. The technology is excellent, and there are significant market needs for this. However, there are only professionals in medical science and sciences, but no entrepreneurs. Therefore, we advise them that they need someone commercial to run the business. They came back to us later, and we invested in them.
Christiane: You had mentioned, we got 11 angel investment groups in New Zealand during the video interview, but we do have any venture capital groups(VCs) in here. Could you please explain why?
Mitali: Because angel investment probably only have ten years of history in New Zealand. By now, we have enough deal flows of companies, which we invested in ten years ago, which are now starting to look for more massive amounts of money from VC funds. There are also a few VCs from overseas are planning to enter the New Zealand market soon. Besides, angel investment is different from VCs. Angel investors usually give support to startups at the initial moments, but VCs typically come in to support growth. It generally invests in a later stage with a more considerable amount of money invested. Given the maturity of the New Zealand market, we have more capacity for the VCs to get involved nowadays.
Christiane: Are there a lot of foreign investors at The Icehouse?
Mitali: We have many investors that are based overseas, especially those entrepreneurs who are growing their business in the States, Europe and Asia. They are willing to support the New Zealand startups now, as their journey as entrepreneurs could be entirely meaningful to them. We have connections to local and international investors, business mentors, and VCs. We also have investors from the significant funds which supports companies to grow internationally. It is also an advantage of partnering with The Icehouse Ventures because we can provide local investment as well as connections into overseas investment. Icehouse Ventures has a good brand and reputation overseas, so it makes it easier for us and our start-ups to reach out to international networks.
Christiane: From your perspective, what are the challenges for the Icehouse Ventures?
Mitali: The biggest challenge could be finding a suitable team and experienced entrepreneurs to make an idea became a reality in the international market. Sometimes we see a great company and its great founders, but we often do not see the complete team. In relation to Healthcare, we did not see enough. There is not enough funding going toward medical technology at an exit point, which is when the company is growing, and this idea is waiting to be sold. The biggest challenge is that we do not have enough investment opportunity in the healthcare sectors that have international scale.
Christiane: We saw a lot of small healthcare companies in New Zealand, and some struggled a lot after a few years since they got established. Do you think it is a prevalent case in New Zealand that we have a lot of healthcare and technology startups?
Mitali: A core part for the healthcare startups is about infrastructure integration -- can you develop a technology that can be quickly adopted and used by the current healthcare infrastructure. It is hard for a healthcare startup to scale big in New Zealand. For instance, Fisher & Paykel is one of the biggest healthcare-related companies locally, but it is only one-of-many large payers internationally. We do need the infrastructure and research funding to support these startups. Besides, we do not have a lot of large corporates to assist them to grow. Healthcare Technology requires a large amount of research funding to support, but we do not have enough funding to leverage it. Consider other areas, such as IT technologies, software and engineering. You only take a little bit of initial investment with a given market of users. It can further grow and request approximately $2-7 million worth of fundings, which support you the next stage. However, when you look at Healthcare, you might need at least $10 million at the initial step to be able to scale.
Christiane: So, when we look at places like China, Japan or the United States, sometimes we do see some new startups that can challenge the status quo or even the business models of the big, mature companies in the industry. Do you think that will ever happen to New Zealand?
Mitali: Well, it can only possibly happen with enough of R&D investment and private sector working well together to build a start-up and corproate ecosystem. If yes, then I think so. Israel, which is a similar size to New Zealand, has done this! But as you know, you need the money and people to do this research and go through the initial business stage in New Zealand. We need to provide enough support from research facilities, but there is still a gap between science and computer technology. There is more to do on this front.
Christiane: What about balancing the risk and return for the healthcare technology market? It is possible that we invested so much at the beginning, and it turned out to be nothing.
Mitali: Yes, but you can also receive higher returns in the medical and Healthcare market if the product works out. I think the critical point is to have more awareness of how the markets operated overseas. Who are your potential buyers of these startups for exit, so we can see returns flowing back to NZ to fund other start-ups in this area? If you get the profits, the multiples are higher than a software product (fingers crossed). To balance the risk and return for the health-tech sectors, you would need an in-depth understanding of the technology as well as the environment it is applied in. It really helps when you have an experienced entrepreneur who has taken a healthcare technology through to market in the team.
I also worked with a lot of female investors through ArcAngels. The general feedback is that the biotech market can be high risk, but the social impact of a company could be a necessary aspect to consider and add up the bonus. First, I am expecting to get my financial return, and second, I am also expecting that the investment subject is bringing an impact to the local community, national and international market. So, there are a lot of them who are taking risks. However, we have a limited pool of investors in New Zealand who understand biotechnology or healthcare technology. As we see more successful healthcare companies giving investors the return, the confidence will build.
Christiane: I am aware that you are interacting with a lot of female investors and entrepreneurs in New Zealand. Do you think there is still gender inequality in the investment industry?
Mitali: I would not say “gender inequality” in purpose, but we do not see many female investment managers, investors or entrepreneurs in the New Zealand market. The Angel Association New Zealand did a review last year, which states that there are only 18% of the investment are from female investors and 18% angel investment went to female founders. The quality of our women-led companies in NZ is exceptional. The concern is that we don’t have enough. The common theme we hear is, women founders who have great ideas don’t know where to start, or do not have mentors to support them through the start-up and fund raising journey. When we have more female investors and mentors in the community, we could see more women founders coming out and pitching. Internationally, we are starting to see more groups encouraging and empowering female investors and founders. We also know that women have a different way to target an unsolved problem. We also see that women investors have a greater understanding of the market reality since the female consumer is mainly contributing to product sales in the market. In regards to Healthcare, a female member could act an even more critical role. They are still the primary carer of both the family and in traditional healthcare settings, so they can assess these investment opportunities more thoroughly. Therefore, we will need more female researchers standing out and more female investors to help bridge this gap. It enables us to align the financial returns and long-term views.
This interview article is a follow-up Q&A session after the video interview. If you would like to watch the video, please visit www.vimeo.com/caretechdia
* All rights reserved by Christiane Zhao and the interviewee.