VCs prefer not to venture into uncharted territory, and government policies do not prioritise R&D
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Even in the middle of a pandemic, Indian startups have flourished across multiple sectors — be it ecommerce, edtech, fintech or foodtech. And in doing so, most of these companies have raised mammoth funding, and a few are now IPO-bound.
But here is the catch. Given that the pandemic is an unprecedented health crisis, have the country’s healthtech startups made significant contributions to fight the menace?
Of course, healthtech startups have worked hard to deliver a slew of services covering telemedicine and e-pharmacy, wellness and mental health. But some of the critical aspects like the production of medtech devices were limited to large corporations. Hence, India’s tech startups could not use their full potential and develop innovative solutions around Covid testing or oxygen concentrators that could have complemented hospital care.
More importantly, companies that developed value-added solutions during the first wave — for instance, indigenous ventilator makers AgVa and Biodesign, among many others — were no longer in the limelight by the time the second surge started sweeping the country in April this year.
It may not be as surprising as you think. Prabhdeep Singh, the founder of the Hyderabad-based emergency ambulance services startup StanPlus, tweeted a couple of weeks ago (April 23), “Since last year, many of us Indian startups have been knocking on VC doors to build healthcare systems in the country the way fintech, gametech and edtech have been built. We were told to be asset-light…”
Another founder in the healthtech space, who does not want to be named, says that the main problem in India’s healthcare sector is a critical lack of infrastructure. This means one cannot be entirely asset-light as it will be akin to building a foodtech company like Zomato or Swiggy when there are not enough restaurants to cater to the demand. “Also, Flipkart would not have been successful had it not invested heavily in creating its own logistics network. The right approach is to aim for the ‘asset-right’ model rather than the ‘asset-light’ one,” the founder adds.
A look at the healthtech sector reveals some interesting insights into how the space has evolved over the past decade:
- Healthtech startup funding in FY21 (April’20 to March’21) went down by more than 43% ($443 Mn raised in FY21 compared to FY20’s $790 Mn). However, sectors like edtech, consumer services and media & entertainment recorded growth of 118%, 51% and 261%, respectively, amid the pandemic.
- With $689 Mn invested during the first four months of 2021, the sector has already raised 30% more funding than the entire 2020.
- The lion’s share of this year’s healthtech funding was cornered by two unicorn rounds. Innovaccer got $105 Mn in February this year and PharmEasy raised $350 Mn in April to enter the coveted unicorn club.
- The Indian healthtech market is estimated to be $21 Bn by 2025, which is just 3.3% of the total addressable healthcare market pegged to reach $638 Bn in 2025.
Do VCs Have A Bias?
To start with, it is quite apparent that VC funding in the healthtech space has increased over the years. Even in pre-Covid times, the annual funding volume crossed $500 Mn in two consecutive years (CY19 and CY20), but the bets are getting more focussed now as the number of deals falls sharply (see the graph above).
Then there is another significant trend. A few segments such as online pharmacy, telemedicine, fitness and wellness and healthcare analytics have cornered more than 65% of the $3.23 Bn that the sector has raised since 2014. So, what is the reason behind this funding concentration?
According to Chandrasekhar K., founder of Accel- and IDG-backed startup Forus based in Bengaluru, that manufactures ophthalmic equipment, VCs cannot be faulted as they have a well-defined funding framework and primarily support companies that can scale rapidly. “The biggest difference between medtech and other segments is that there is hardly a direct connection between service providers and consumers in the latter case. Moreover, it takes a lot of time to build and validate the core technology in medtech. So, one cannot expect that a startup in that space will become a unicorn overnight,” he adds.
Ganesh Krishnan, a serial entrepreneur and founder of Bengaluru-based GrowthStory, a startup co-creator platform that has supported a number of ventures like online grocer BigBasket, cloud kitchen and food delivery company FreshMenu, online jeweller BlueStone, home healthcare provider Portea Medical and others, think that comparing aggregator platforms with those requiring a lot of R&D or physical infrastructure is not the right approach.
“The VC model, in most cases, is very simple. After the product-market fit, you come in and pour cash into discounts and marketing to attract more users,” he explains. “A consumer will happily order from an ecommerce platform if he/she gets a discount, but that is not the case when it comes to treating a medical condition. Will you be convinced if I tell you that you can get a heart surgery done at a 50% discount?”
However, the biggest reasons for VCs to stay away from startups that push the envelope are the mismatch in investment time horizons and the fear of regulatory restrictions (think crypto, and you know how complicated things can get), say stakeholders in the healthtech space.
While VCs look to stay invested in a company for around five years before seeking an exit, it generally takes an R&D-focussed startup that much time to create a minimum viable product. Even after that, the product may not hit the market due to the delay in getting IP rights and regulatory approvals.
Policy Needs To Pull Up Its Socks
The issues mentioned above are not unique to India, though. Healthcare innovation is an uncertain bet, and governments worldwide are cautious of approving new medical technologies or giving regulatory approval to unproven business models in healthcare lest they turn out to be harmful.
The extended clinical trials of Covid-19 vaccines is a case in point. The US-based healthtech startup Moderna, which Bill Gates backs, got the green light to begin clinical trials only in March, although pharma majors Pfizer and AstraZeneca’s vaccines were in use by that time.
Rahul Patel, the cofounder of Guwahati-based Primary Healthtech and the head of IIT-Kanpur’s startup incubator, says, “The uncertainty in R&D is the reason why developed countries in the West support their startups in the early stages through grants and access to the research infrastructure in public universities. However, there is a lack of such strong support in our country.”
In the 1990s, the U.S. government’s space agency NASA came up with a scale of 1-9 to gauge the technological readiness level (TLR) of any innovation — a system of measurement that most R&D companies and investors use today. According to Patel, the Indian government has schemes to fund TLR 1-4, which generally requires up to INR 50 Lakh. But most innovations die a silent death during TLR 4-7 when a beta product is built and tested in the market.
“PE/VCs can come in and help scale the business only at TLR 7-9 when regulators and consumers have already validated a product,” he adds.
A look at the government funding for healthcare research also paints a dismal picture. Union Budgets of FY18, FY19 and FY20 allocated INR 1,732 Cr, INR 1,728 Cr and INR 1,861 Cr, respectively, to this category out of a total outlay of INR 2.5-3 Lakh Cr. However, the Covid-19 pandemic led the government to increase its allocation by 118.3% to INR 4,062 Cr in FY21, according to revised budget estimates for the financial year.
Unfortunately, policy bottlenecks often hamper proper allocation of government funding. Siddarth Pai, founding partner of the VC firm 3one4 Capital, says that both individuals and organisations find it difficult to give philanthropic grants to startups engaged in R&D, which is a major issue. “We need to make a concerted effort to effect policy changes so that the taxmen or other regulators do not knock at the company’s or granter’s door for making a CSR allocation or providing a grant. Industry stakeholders need to highlight the challenges and push for reforms before any change can happen,” he adds.
But as the pandemic has proved, time is of the essence in healthcare. Too many people have died as they could not get tested at the earliest or did not find a hospital bed when they fell ill. The startup ecosystem is moving mountains to import oxygen concentrators even though multiple startups suspended their efforts to build ventilators last year as they received no funds when the Covid surge slowed down.
India’s second surge is the most ferocious yet and spreading fast. But waiting to implement all necessary measures until the crisis struck has been a disaster for the country. One can only hope that the ongoing devastation will make the country’s policymakers more prepared and far-sighted.
Indian Startups Prioritise Mental Health
As the fearsome second wave of Covid-19 and the rising uncertainty thereof affect employees’ well-being, many startups are taking steps to help their workforce cope with the situation. The second wave has created a sense of panic and disorientation for the population that is very different from what was experienced in 2020 as India’s medical infrastructure is facing a near-collapse.
“We also have counselling support for expecting and new mothers. This is to help them deal with stress and anxiety that can happen during this phase of their life. And this is further amplified as they manage work, home and all other changes in lifestyle due to the pandemic,” said Ratnadeep Ray, senior director, human resources, at the India arm of the SaaS startup Druva.
Similarly, healthtech unicorn Innovaccer, which has a bulk of its employees based in India, brought in mental health experts in 2020 and initiated an employee assistance programme. The round-the-clock helpline connects employees to a certified therapist and helps them schedule personal sessions, maintaining anonymity all the while.
But the most significant impact from the mental health perspective has been made by Zerodha. Founder Nithin Kamath tweeted on Thursday (May 6) that there would not be any work communication after 6 PM and on holidays. Interestingly, corporate employees worldwide have been complaining that work from home has affected work-life balance and leads to burnouts.
Indian Startups Build Innovative Products To Fight The Pandemic
In the game of survival, the human race has to play catch-up with deadly pathogens that cause a slew of dangerous diseases such as plague, HIV-AIDS, polio and, most recently, the Covid-19 pandemic.
As businesses across the country are reassessing their pandemic playbooks, new ideas from the Indian startup ecosystem are still flourishing and positively impacting the nation.
For instance, Bengaluru-based medtech startup AarogyaAI aims to solve part of this problem using genomics and AI-powered precision diagnosis to track infectious diseases before it is too late and suggest the most effective drugs to help patients. AarogyaAI’s first product is an AI-based testing solution that helps diagnose drug-resistant tuberculosis (DR TB) 100 times faster than the existing gold standard, the company claims.
AarogyaAI is one of the companies that are on track to make the new normal safer and better, and hence, features in The Startups That Caught Our Eye In April 2021 list curated by Inc42 Plus.
As we sat down to shortlist the startups for April, the full impact of the uncertainty facing the Indian population hit us hard. With India’s healthcare needs escalating and getting more complicated at multiple levels, healthtech startups are working on several products that are currently under clinical trials or in the development phase. In such circumstances, one cannot but wonder what if they had enough funding and supporting infrastructure before the crisis struck.
One can only hope that the perilous state of affairs in healthcare will become a national discourse from now on, and startups in the healthtech space will get more support from the government and investors.
Until next time,