How can health tech start-ups navigate the path to funding?

By Brian Whisnant, partner, Deloitte & Touche, LLP

Inflation, rising interest rates, and an unpredictable stock market could make it challenging for some early-stage technology companies to secure funding. Moreover, companies that are on the cusp of going public might opt to delay an initial public offering (IPO) until the market stabilizes. Many of the tech-related companies that went public last year are trading down, which has many start-ups thinking carefully about the next step in their journey.

There is a silver lining around the clouds currently floating over the economy. Demand for technology in health care continues to outpace supply. In addition, some investors raised significant capital over the past couple of years. I expect health technology companies might have an easier time finding funding than technology companies in other sectors. However, given the current environment, investors are likely to be selective about where they put their money. I expect they will eye companies that have established revenue streams as opposed to companies that are still getting off the ground. A company that has already received Series A funding, and has a demonstrated revenue stream, will likely be well positioned for future rounds of funding.

Health Tech Accelerator can guide innovators along their journey

People have been talking about fixing the health care system for as long as I can remember. They have historically looked to the government to solve problems, drive change, and improve efficiencies. While the health sector appears to be on the cusp of a significant disruption, change isn’t being driven by the government. Meaningful change is being driven by emerging companies that have innovative ideas. But there are multiple steps along the journey.

Deloitte’s Health Tech Accelerator provides professional services to companies as they define, identify, and reach major milestones. These milestones can include securing initial and later-stage funding, performing research and development (R&D), developing infrastructure, attracting talent, scaling operations, and developing marketing and distribution strategies. Over the past several years, we have advised many fledgling companies—from inception to becoming publicly traded—and have become familiar with the typical lifecycle of a new company.

We can tap into this depth of experience to advise companies as they address their most pressing challenges. This could be particularly advantageous for early-stage companies, which tend to lack the resources of more established companies.

We’ve observed several areas where health tech start-ups can benefit from the Health Tech Accelerator.

• Financial accounting: Early-stage companies frequently have complex debt and equity instruments and R&D arrangements. Getting the accounting accurate is of critical importance to investors who rely on audited financial statements to inform their investment decisions.
• Sustainability, climate and equity (SC&E): Investors are becoming increasingly interested in a company’s SC&E strategy. Understanding the regulatory landscape and preparing appropriate disclosures is important for satisfying disclosure obligations and meeting the needs of investors. 
• Systems, processes, and controls: Accurate reporting of financial and non-financial information requires companies to identify the necessary systems, processes, and controls.
• IPO readiness: Preparing for an initial public offering can require a tremendous amount of planning. Companies should be strategic and proactive. Having a guide who has traveled this path before can be helpful.

The bottom line

Investors have grown increasingly interested in the dynamic health care industry. They see tremendous opportunity to improve what they see as an outdated and inefficient ecosystem through innovative and tech-enabled business models.

Many of the companies that have participated in our Health Tech Accelerator recognize these issues and have novel ideas to address them. However, a great idea might never become a reality without effectively navigating the many milestones leading to commercialization. The Health Tech Accelerator helps start-ups understand what they should be doing, when they should be doing it, and what to expect along the journey to becoming a public company. It is like an investment Sherpa that helps to guide start-ups along a path that others have effectively traversed.

This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.

Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.

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