Proving Worth to an Investor

I saw Roy Ziegler, a partner at Chrysalis Ventures, speak on a panel about funding for startups at the Health Tech NextGeneration Conference last week. Depending on what setting he’s in and who he’s sitting next to, Ziegler might come off relatively cynical for saying things like, “Follow the money” and “We’re investing in businesses, not apps.”

After Facebook spent one billion dollars to acquire Instagram earlier this year, I’ve heard a few people optimistically indicate that they think they might not necessarily have to prove value to know some success. Of course entrepreneurs believe what they’re doing is useful, but I think some have a false hope that they’re going to get by without having to do some real convincing ― the kind of convincing that involves some numbers and facts.

As a pragmatic, savvy and even risk-averse person, Ziegler is an obstacle to startups trying to obtain funding. He explained why Chrysalis typically rejects apps:

“While I agree that health care touches everybody, it doesn’t touch us all equally,” he said. “The fact of the matter is that 80% of our consumption of health care comes from 20% of the people. And so we wouldn’t invest in a consumer app unless it really had an impact on that 20%.”

Not every startup wants or needs a venture capital firm like Chrysalis on its side. The firm generally stays away from products that rely on consumers to pay, as opposed to insurers or employers, and it avoids very early-stage investing. Still a lot of Ziegler’s advice applies to any startup at any stage trying to get to that next stage.

Ziegler said he’s found that large institutions seem willing to host pilot programs to test new ideas and technologies. The key for startups is to make the most of that first opportunity and to demonstrate worth during a clinical trial, for example. Later on when it comes time to do a presentation, mentioning a statistic is much more effective than showing the logo of the hospital where the trial took place. Ziegler gave an example of one of Chrysalis’ ventures called HealthMedia, an online coaching platform.

“It was science-driven and we had validated results that we could get people’s phone numbers that were using it and that were seeing a significant return on investment. That’s what enabled the company, I think, to be successful,” he said.

Ziegler thinks there’s a huge potential for mobile platforms to impact health care, given the current state of supply and demand in the system.

“If you look at the supply of available financial resources as well as just human capital on the provider side and you match that against the epidemic of chronic disease and obesity, that’s a tremendous opportunity for lower-cost, more efficient models of delivering care.”

Ziegler, in fact, isn’t cynical. I could tell that he’s enthusiastic about what he does and the people and companies he deals with.

“I have a rule of thumb,” he said. “If I like 80% of what I see, I don’t take any action. And that’s what happens with me in the whole mHealth area. I love everything that I see.”

So good news: health tech companies are starting up in an area that investors love. The bad news is that that’s also the bad news.

Health 2.0