👋 Welcome to the 53rd edition of Deep Tech Catalyst, the channel by The Scenarionist where science meets venture!
Products and companies may straddle the boundaries between HealthTech and MedTech, creating a gray area. However, understanding this distinction is crucial when planning the regulatory path, go-to-market strategy, distribution, and ultimately, the type of VC funds involved.
In this episode, we are thrilled to welcome Andrew Rubenstein, Founding Partner at Shorewind Capital. He will help us to pinpoint what makes these two paths different, highlight best practices for HealthTech go-to-market strategies and distribution tactics, and explain how to avoid the most common pitfalls in the early stages.
Key Themes Covered:
🏥 Understanding The Line Between HealthTech and MedTech
🩻 Emerging Trends: Preventive Care and AI
⛔️ A Common Pitfall: Shifting from Consumer to Traditional Healthcare
🤝 Core Team Skillset in HealthTech vs MedTech
🚀 3 Distribution and Go-to-Market Strategies in HealthTech
⏱️ Timelines and VC Expectations in HealthTech vs. MedTech Startups
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KEY INSIGHTS FROM THE EPISODE
🏥 Understanding The Line Between HealthTech and MedTech
Products and companies may straddle the boundaries between HealthTech and MedTech, creating a gray area. As we will see, understanding this difference becomes very important, for instance, when planning the regulatory path, go-to-market strategy, distribution, and consequently, the roadmap and ultimately, the type of VC funds involved.
What is HealthTech?
HealthTech (or consumer health) broadly refers to technologies that focus on consumer health, improving individual health and wellness. Unlike traditional MedTech, HealthTech often bypasses many of the regulatory and institutional hurdles found in the healthcare system. It caters directly to consumers, sometimes skipping over traditional healthcare pathways like FDA approval, insurance providers, or healthcare distributors.
Key elements are:
Direct-to-Consumer Focus: Health tech companies often market directly to users, who may not necessarily be patients in the clinical sense. For instance, tools like the Apple Watch fall into this category because they target users interested in tracking their health and wellness rather than addressing a medical condition.
(Often) No Need for Regulatory Approvals: Many health tech products don’t require FDA approval, enabling them to reach the market more quickly and innovate more freely.
What Is MedTech?
MedTech (or traditional healthcare), on the other hand, includes devices and tools designed to diagnose, monitor, or treat medical conditions. These products often require regulatory approvals and integrate with the healthcare system.
The key elements here are:
Integration with B2B Healthcare Systems: MedTech solutions are often distributed via providers, supported by insurance, and embedded within the broader healthcare infrastructure.
Regulatory Compliance: Products typically go through rigorous FDA approval processes.
🩻 Emerging Trends: Preventive Care and AI
Over the next 10-15 years, it’s expected a significant shift in healthcare from reactive to proactive approaches. This trend emphasizes prevention, early detection, and health restoration rather than waiting for symptoms to emerge.
The main factors to consider here are:
Early Detection: The focus will move upstream to identify health issues before symptoms manifest.
Proactive Intervention: Interventions will occur earlier, preventing conditions from escalating into more severe problems.
Prevention-Centric Care: The system will prioritize maintaining health rather than just addressing illness.
2 Enablers of Change
1. At-Home Testing
Convenience: Making testing more accessible and eliminating the need to visit labs or doctors’ offices will encourage more frequent health monitoring.
Better Data: Regular testing will provide more comprehensive data on individuals’ health over time.
2. Artificial Intelligence (AI) Infrastructure
Data Analysis: With the influx of data from at-home testing, reliable AI systems will be crucial for processing and analyzing information.
Trust and Reliability: AI systems must be trustworthy and accurate to enable widespread adoption by healthcare professionals.
Adoption Barriers to HealthTech Solutions
One of the main obstacles to adopting preventative health measures in the U.S. healthcare system lies in how insurance operates. Current insurance models are not necessarily designed to incentivize long-term health outcomes for individuals.
Here are 2 reasons why:
High Turnover Rates: Employer-provided insurance faces a similar issue. On average, employees change jobs every three years, meaning their health benefits don’t necessarily accrue to the same employer’s insurance plan.
No Long-Term Benefit: Insurers lack motivation to invest in preventative measures that might reduce costs over 5 to 10 years, as the patient may no longer be with the same insurance provider by then.
A Shift Toward Value-Based Payments
There is a slow but steady transition in the U.S. healthcare system toward value-based payment models. These models focus on rewarding providers and insurers for maintaining patient health, rather than for the volume of services rendered.
However, until value-based payments become the norm, preventative health innovations will need to overcome the challenges posed by current insurance practices.
At-Home Testing and Biohacking: Bridging the Gap
In the interim, at-home testing and consumer-driven health optimization are emerging as key solutions. These technologies appeal to individuals who are willing to pay out of pocket for health monitoring and improvement.
Self-Pay Model: Biohackers and health optimizers, who are often not clinically ill, are interested in prolonging wellness and enhancing performance. They frequently pay out of pocket for cutting-edge health tech.
FDA Approval: To appeal to a broader audience, companies often seek FDA approval for their products. This ensures higher accuracy and trust, especially for those closer to a state of sickness.
Market Limitations: While the biohacker market is growing, it remains relatively niche due to the self-pay nature of the segment.
⛔️ A Common Pitfall: Shifting from Consumer to Traditional Healthcare
In the HealthTech ecosystem, the sequence of key milestones is critical for founders, especially those navigating regulatory approvals and funding rounds. Missteps in planning these fundable events can create significant challenges for startups.
Founders must balance:
When to Enter the Market: Timing the launch of a consumer product or service.
When/If to Pursue Regulatory Approval: Starting the FDA or other regulatory processes.
When to Raise Capital: Aligning funding rounds with developmental milestones.
Each decision impacts the company's trajectory, requiring a carefully thought-out strategy.
Shifting From a Consumer Health Company to a Traditional Healthcare Company
One of the most challenging strategies for health tech founders is transitioning from a consumer health company to a traditional healthcare (or MedTech) company. While appealing in theory, this approach often proves difficult in practice for several reasons:
Cultural Differences: Consumer health and healthcare companies attract different types of employees and leadership teams.
Resource Allocation and Distribution: The two models require distinct strategies for resource deployment.
Regulatory Path
Brand (and Go-to-Market) Shift
Investor Mismatch: Investors in consumer health may not have the appetite for the slower, higher-risk path of traditional healthcare.
Advice for Founders
Attempting to navigate both models simultaneously or pivot midstream often results in complications. Instead, create a clear roadmap of fundable events and align your strategy, team, and resources to ensure effective execution.
Therefore:
Pick a Lane and Commit: Decide whether to pursue a consumer health or traditional healthcare model and focus on that path from the start.
Plan for the Long Game: If pursuing the traditional healthcare route, be prepared for a longer timeline, higher upfront costs, and greater reliance on capital before generating revenue.
🎨 The Role of Branding and Communication
Branding plays a pivotal role in HealthTech, but its focus and execution vary significantly between consumer health companies and traditional healthcare companies. Understanding these differences is crucial for targeting the right audience and building trust.
Branding in HealthTech
Consumer health companies often target a specific segment of the market that is generally in good health but aims to enhance performance and longevity.
Key Elements
Target Audience: Higher-income individuals, often in good health, looking to optimize their performance or maintain long-term wellness.
Focus on Lifestyle: The messaging is aspirational, emphasizing living life to its fullest and maximizing potential.
Visual and Emotional Appeal: Branding leans toward vibrant, energetic visuals and messaging that resonates with active, health-conscious consumers.
Performance-Oriented Themes: Themes like “human optimization,” “pushing limits,” and “prolonging vitality” are central to the brand narrative.
Branding in MedTech
In traditional healthcare, branding focuses on establishing trust with professionals and organizations within the healthcare system, such as doctors, insurers, and regulatory bodies.
Key Elements
Target Audience: Physicians, insurers, and healthcare administrators rather than patients directly.
Focus on Science and Accuracy: Messaging centers on reliability, precision, and the ability to save lives or improve patient outcomes.
Trust and Professionalism: The tone is serious, often highlighting certifications, studies, and scientific rigor to build trust among healthcare professionals.
Collaborative Relationships: Branding must appeal to stakeholders who play a role in distribution, adoption, and reimbursement, such as insurers and medical providers.
🤝 Core Team Skillset in HealthTech vs MedTech
For technical founders (like those with PhDs in biomedical fields), early hires often address gaps in product management, marketing, and sales—areas where the founder might lack experience. So, the priorities for consumer health companies are:
Branding and marketing expertise to connect with end users.
Product development experience, especially in HealthTech, to create user-friendly and appealing solutions.
Sales capabilities focused on reaching and engaging customers directly.
Traditional Healthcare Companies are Different…
If you move into the healthcare space later, you’ll need people skilled in regulatory processes and working directly with clinical stakeholders. Switching models mid-journey is tough because it means building essentially 2 different teams and cultures within one company. Here, the must-haves are:
Regulatory expertise for navigating FDA approval or equivalent processes.
Experience with distribution models within the healthcare system.
The ability to build trust and partnerships with doctors, insurers, and other medical stakeholders.
🚀 3 Distribution and Go-to-Market Strategies in HealthTech
In consumer health, often startups experience a predictable cycle in their go-to-market strategies, especially when targeting consumers. This cycle highlights the challenges of achieving efficient and scalable distribution.
Step 1: Consumer Go-to-Market
Many startups start with a consumer go-to-market strategy, relying on ads and marketing campaigns.
Challenges:
High Customer Acquisition Costs (CAC): Over time, the cost of acquiring new customers increases.
Declining Return on Ad Spend (ROAS): The effectiveness of advertising diminishes after the initial growth phase.
Step 2: Pivot to Employers
Employers and third-party health benefits managers are often the next targets because they offer access to large groups of potential users, providing a more efficient distribution model.
Challenges:
Long Sales Cycles: Negotiating with employers or benefit managers can take months or even years.
Complex Relationships: Securing these partnerships requires a dedicated team and strong business development expertise.
Step 3: Direct to Providers
After that, some try to approach healthcare providers directly, which is even more time-consuming. Healthcare providers can directly influence patient adoption, making them a powerful distribution channel.
Challenges:
Even Longer Sales Cycles: Building trust and integration with providers often takes years.
Drawbacks: Providers are cautious, requiring robust evidence of efficacy, regulatory approval, and seamless integration into existing systems.
In the end, the best option can vary significantly from case to case.
⏱️ Timelines and VC Expectations in HealthTech vs. MedTech Startups
Time-to-market varies significantly between consumer health and traditional healthcare companies. This disparity is primarily due to regulatory requirements, the need for data collection, and the complexity of product validation. For founders, understanding these differences is critical for planning financial and operational strategies.
HealthTech
Consumer health products without big regulatory hurdles can sometimes reach the market by or even before their seed round.
By Series A, consumer-focused startups typically show real customer data.
Key Factors
More Regulatory Freedom: Without the mandatory need for FDA approval, consumer health products can launch earlier, often after a seed round.
Data Collection: Consumer health products may not require extensive data validation, allowing companies to alpha or beta-test their products with early customers.
Typical Timeline
Seed Round: Product development and initial market entry, possibly through beta testing or limited launches.
Series A: By this stage, companies are generally expected to have customer data and initial revenue streams to present to investors.
Why Are MedTech Companies Different?
In traditional healthcare, where FDA approval is always required, timelines are much longer. You may not be in the market before raising a Series A, and you’ll rely on internal validation or third-party data rather than early sales metrics.
This calls for investors comfortable with scientific data rather than just user growth. As a rough guideline, if you need FDA clearance, expect that you won’t be in the market within 3 years of founding.
It varies widely, but going the regulatory route generally means more complexity, higher costs, and a smaller investor pool.
Key Factors
Regulatory Approval: Products like medical devices or diagnostic tools often require FDA clearance, extending the time-to-market.
Data Collection: Companies must generate comprehensive validation data, often through clinical trials or other rigorous testing processes.
Smaller Investor Pool: Fewer VCs are comfortable evaluating scientific data and navigating regulatory risks.
Typical Timeline
Seed Round: Focus on prototype development and initial data collection.
Series A: Fundraising often relies on presenting internal validation data or third-party validation studies.
