The global coronavirus outbreak is a human crisis, causing a huge impact on people’s lives, families and communities. It is also a risk to our economies and investments, as we see share prices of well-known companies fall to record levels, foreign investment drying up, and the potential for a coronavirus recession. The end to the 11-year bull market is troubling, but for some, out of crisis can come opportunity. From academic research, to industry and frontline clinicians, the health and life sciences sectors have never been more at the forefront of society.
Ahead of the MedCity Company Showcase on 14 May, we spoke with James Wong at Mercia Asset Management PLC. As a venture capital investor and advisor with investment, board and corporate experience and a focus on healthcare and technology sectors, James has worked with a number of leading investors and high-growth companies. Prior to Mercia, James undertook research at Cambridge Computational Biology Institute before starting his career at Cambridge Consultants. He then entered venture capital and became an investment manager at NBGI Ventures, a venture capital firm in London investing in medical technology companies across Europe and the US. More recently, James was an investment director focused on venture capital and university IP commercialisation at Fosun Pharma, a publicly-listed healthcare group in Shanghai. He holds an EPSRC-funded MPhil in Computational Biology, and has served as an assessor for Innovate UK and a mentor for the MedTech SuperConnector.
James believes the pandemic has put a spotlight on the UK’s life sciences and medtech sectors, attracting interest in companies that are commercialising products that can help limit the impact of the virus, particularly those working in the three key areas of diagnostics, vaccines and therapies. This converges with the technology sector as the demand for digital solutions, such as Babylon Health, increases as society adapts to being in lockdown, as well as deeptech approaches to accelerate the discovery and development of new vaccines and therapies.
While sectors such as travel and hospitality have been heavily impacted by the crisis, healthcare and technology sectors have remained buoyant. Still, investors are being cautious.
“From my dialogue with investors and corporates, in the near-term most will focus on supporting existing portfolio companies and be more selective when considering new investments.
Given there is uncertainty on when lockdown measures will be over for the economy to recover to some form of normality, investors are being prudent and responsible to reflect on their portfolios and ensure existing commitments are met while being open to new deals.
Indeed, those who hold a long-term view are keen to remain active and invest through the downturn. There may also be investment and M&A opportunities that become more compelling.”
There is an argument that a growing focus on the healthcare sector could drive more investor interest in life sciences start-ups and scale-ups. During the last recession, angel and seed activity increased by 34% in the US and looking at the early-stage deals that were made this year to date, especially in March, the vertical categories that garnered the most funding were enterprise SaaS, fintech, life sciences, healthcare IT, edtech and cybersecurity.
“We’re all keeping an eye on the innovation in healthcare and technology, with retail and institutional investors evaluating opportunities and challenges now and in a post-COVID world.
Right now there is interest in solutions that will help healthcare systems respond to COVID-19, from rapid research and development of vaccines, treatments and diagnostics, investigating the epidemiology and increasing global understanding of the virus, to digital health solutions that can be quickly deployed and scaled up during lockdown. Mercia has supported a number of portfolio companies that are active in the sector, including Sense Biodetection, a MedCity alumnus which is accelerating the development of its rapid nucleic acid test for COVID-19.
But this isn’t a closed book. If you’re a long-term investor you expect economic cycles. This chapter will not put you off investing in ambitious teams with quality science and technology.”
8 tips for startups and scaleups looking for investment
For startups and scaleups that are looking for funding in these uncertain times, James provided some of his thoughts on this topic, based on his observations of interacting with colleagues, portfolio companies, venture investors and corporates over the past month in lockdown.
- Investors have been focused on characterising the impact of the crisis on their existing portfolio companies as a priority. Take this time to have timely and honest conversations with your existing shareholders and investors on what you need for your post-COVID plan.
- If your offices and labs are closed, employees are working remotely or furloughed, clinical trials paused and sales meetings postponed – what are your contingency plans to remain operational, be it in product R&D to marketing, selling and fulfilling new orders.
- Think about your cashflow and what measures you can take to extend your runway and survive the crisis, without jeopardising your long-term strategy. Make the most of innovation-driven grants such as from Innovate UK and the government’s COVID-19 financial support.
- Cultivate relationships with partners, suppliers and customers that are key to your plan. This will enable you to sense check and refine your assumptions and demonstrate to investors you are adapting to the new normal and will overcome the challenges ahead.
- Where there is high alignment with your competencies and resources, consider how you can improvise by pivoting or repurposing your innovation fast enough to capture the demand for solutions specific to COVID-19, which will attract interest from customers and investors.
- Consider the practicalities of the fundraise process on both sides. How will investors evaluate opportunities and undertake due diligence under lockdown? Expect rounds to be delayed and use digital tools, such as video calls, a virtual tour and demo, and data rooms.
- Be willing to adapt your fundraise strategy and parameters. For example, the amount of capital needed, timing to completion, milestones to be achieved. Be proactive in identifying and engaging target investors, listen to feedback and have realistic valuation expectations.
- Ultimately, if your innovation and market opportunity remains compelling, investors will want to hear from you and in turn make their own decision. Don’t let the current crisis deter you from pushing forward. Stay calm, confident and persevere to win investors over.
James is attending the Angels in MedCity event in May and said:
“Angels in MedCity is a great programme that highlights the strength of the UK’s life sciences cluster and draws out excellent companies to pitch to investors. Particularly at this time, life science focused events allow us to get that healthy balance of optimism and market reality.
In the past ten years I have seen the levelling up of life sciences and deeptech in the golden triangle, with recognition the cluster is a source of innovative ideas and startups that attract capital and talent. The challenge will be for these companies to continue scaling up globally.
As for the rest of the UK, such as the Midlands and the North, I believe there is an equally compelling opportunity for each cluster to link back to their academic and industrial heritage in being able to innovate and attract capital and talent in the same spirit for the 21st century.”