Q&A: Claudio D’Angelo – Spex Capital
This month we announced a new partnership with Spex Capital to launch a call for digital health and medtech early-stage companies seeking seed and Series A investment.
Spex Capital is a digital health and medtech investment management firm specialised in advancing disruptive ventures in the industry. MedCity will support the shortlisting and selection of companies, with Spex Capital offering tickets between £500,000 and £5,000,000 to the most promising candidates. The first call will launch on 15 September.
We spoke to Claudio D’Angelo, Founder and Managing Director of Spex Capital, about the partnership, and about trends in digital health and medtech investments more broadly.
Q. What is it about London that made you base Spex Capital here?
I’ve been in London for 25 years – first in financial markets, and then as a venture capitalist. To me London is pretty much the central hub. It’s where the pool of talent is, it has the accelerators, incubators, universities, hospitals… Having all the stakeholders in one place means there’s an ecosystem that really helps young companies to blossom. On top of that, the friendly tax environment really helps (SEIS and EIS) and puts London and the UK in a strong position, as investors are encouraged to invest in those earlier stage companies.
Q. Can you tell us a bit about why you’ve launched this partnership with MedCity?
My relationship with MedCity goes back quite a few years now. I was previously co-founder and co-managing partner at RYSE Asset Management. Through this venture we launched a number of calls for companies seeking funding, and over the years we’ve fine-tuned the process. Since founding Spex Capital at the beginning of the year, I was keen to again partner with MedCity for a few reasons. MedCity is clearly the place to go in terms of advisors, reviewers and panellists who are able to assess and validate new digital health technologies, as well as advise companies on the best strategies to navigate NHS England. For both our investors and the companies looking for investment, that rubber stamp of having been vetted by a panel with the level of expertise that MedCity can assemble is really valuable. And then, there is obviously the number of companies that MedCity is able to introduce us to. Judging by previous calls, I’m predicting to see at least 500 companies come forward for the first call in this partnership.
Q. How many companies are you envisaging will be successful?
Our expectation is five to ten companies per investment call, which will receive investment of between £500k and £5m. That said, we’re always prepared to scale up to higher numbers or invest in more companies if they grab our attention. We give ourselves no strict limits, so I hope there may even be more than ten companies that will emerge as successful.
Q. And, what kind of companies are you targeting?
We’re looking for early-stage and Series A companies. The majority will be looking to raise between £500k and £2m, and will have a pre-money valuation between £3-6m. Our anticipation is that we’ll be able to take these ventures very quickly to the point where we’re then investing in their Series A fundraise, and then continue to Series B for the more deserving companies.
Q. What’s your approach to dealing with the companies you invest in?
We like to call it ‘incubating mode’. We’ve been careful to develop a strong network of advisors, all with complementary skills. And because we see so many companies, we’re able to discover the synergies between them, and immediately spot the type of advice that will help a company. It’s so important for young companies to get the right guidance at the right time, so facilitating these introductions and helping them build their network of contacts and advisers is a really important way we can help them accelerate their growth.
Q. What’s the key ingredient you and other investors are looking for in a company?
There’s one word: traction. With young companies, most times you can’t assess by cash flow or revenue for the most part, but if they are gaining traction in some way, that’s a good indicator for us. This will be different for diverse companies but could be one of several things – they may be on the cusp of releasing a study that validates their technology; they’ve just signed a contract with a private healthcare provider; maybe they have an important angel investor already backing them… In our case, we’re quite agnostic as to the particular type of technology or area, but ‘traction’ is what we’re really interested in.
Then, we unfortunately now have a new input to consider, which is whether the company is ‘COVID-proof’. Our approach to due diligence had to change during COVID-19, and companies that didn’t rely heavily on face-to-face sales processes or other interactions became automatically more attractive.
Q. How else has COVID-19 changed investments?
Last year, many venture capitalists held back from investing in new companies, held their positions and protected their existing investments. In my case, I maintained existing investments, but I did also invest in new companies. The new companies I invested in were those that I thought would do well in the COVID environment though – for example, telehealth services, care home management software, operational and medical equipment issues reporting tools – and this is a trend that’s emerging for other investors now too.
Q. What other trends are there in investments at the moment?
In 2021 investment in early-stage companies has picked up again. In the UK, around 70% of digital health/medtech investments are now in early-stage companies (and the figure is similar across Europe).
There are a few very notable growth areas… Mental health is clearly an important topic, and one that COVID-19 has highlighted. Telehealth and telemedicine have also been transformed because of COVID-19, and we’re seeing huge growth in that area. Chronic diseases, which unfortunately went on the backburner during the pandemic, are now in more urgent need of support. There’s also a lot of interest in women’s health and female-led companies. Artificial intelligence (AI), and everything surrounding it, continues to be a hot topic. And, lastly, we’re seeing a lot of interest in the ‘omics’, for example genomics, at the moment. This is an area where huge amounts of investment are being made, in particular from the US.
Q. Speaking of US money – what are the global trends for flow of investments right now – particularly with Brexit in mind?
We’re seeing large amounts of money flow into Europe from the US right now, I believe because US investors have seen (and appreciate) that in Europe there is a very thorough approach to due diligence. US investors are partnering up with European venture capitalists because they see the companies that we select as being very solid.
Across Europe, there are a few key countries where funds tend to flow from. We see a lot of interest coming from Switzerland, because of the number of pharma companies based there, and they seem to mainly focus on later stage investments. Spain, because of their very strong national health system, are very advanced, and spend a lot in healthcare innovations. And Israel, which is one of the very few countries in the world to have entirely digitised their health record systems, is extremely advanced in digital health.
When it comes to Brexit, there are strategies we, as venture capital firms, have been able to put in place so that we can continue to solicit investments from the EU. For us, we wanted to remain in London because – as I’ve said already – this is the main hub, and where the pool of talent is. Thankfully, with careful structuring, the Brexit deal that was struck still allowed us to do this, with investments from the EU still coming in.
Q. What’s the outlook for digital health and medtech companies in your portfolio?
We’re seeing rapid growth in many of our companies. Advancements in digital health that we thought would take three to five years, have now already happened in the last 15 months. As a result, digital health and medtech companies are growing much quicker than their previous targets. One example of a company that I invested in at early stage has now progressed through Series A, top-ups, grants, and is now preparing for their Series-B stage – all within two and a half years. This is the kind of growth I hope we can facilitate for the companies that apply through our call with MedCity.
About the Spex Capital Investment Call
The Spex Capital Investment Call is being led from MedCity by COO Nicki Bromwich and Programme Lead Sakura Holloway.
Nicki Bromwich: A clinician with 30 years’ experience in the NHS, Nicki joined MedCity as Chief Operating Officer in 2020, following her role as Head of Commercial Development at Oxford AHSN. Over the past 7 years Nicki has supported numerous digital and medtech SMEs to develop their value proposition and business plans. Nicki has assessed and judged SMEs in a range of accelerator and investment programmes.
Sakura Holloway: Sakura is a biologist by background but has spent most of her career working in the biotech sector as IP and commercial strategist, applying her patent attorney skills to enable companies to develop robust IP portfolios and competitive positioning driven by commercial objectives in the form of licensing or acquisitions. More recently she has been working in the healthcare investment sector, conducting diligence on investment opportunities, coaching company founders with their pitch and advising on commercial strategies.
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