Picking healthtech winners

Why venture capital in healthcare is a long-term bet on a blockbuster

Dr Fiona Pathiraja, Founder, Crista Galli Ventures

The UK has a thriving healthtech scene with thousands of eager startup companies offering new ideas to improve the treatment of patients. But very few of them will see those ideas put into practice until they clear a vital hurdle - convincing an investor to back them. That often means wooing the venture capital industry which makes big bets on risky businesses, knowing most of them won’t come off.

I’ve been speaking to a relative newcomer to the VC world Dr Fiona Pathiraja, who runs Crista Galli Ventures. It was Fiona who mentioned Charco Neurotech to me, and that led to my meeting its founder and trying out its device for people with Parkinson’s. Charco is typical of the kind of company that wouldn’t get off the ground without VC backing, a brilliant but untested idea from a young team, where substantial sums have to be risked before you know whether you have a winner or a dud.

Dr Pathiraja said she did not normally back hardware businesses but was impressed that Charco was developing an app that would allow users to track their symptoms and their medication: “I liked that sort of holistic thinking. And unlike a lot of other startups in this area, I have found that they're working really strongly with the patient community, “ she explained. “And importantly, Charco really listen to what the patient feedback is.”

Fiona’s view of the healthtech scene is shaped by a background which saw her start as an NHS radiologist, eager to embrace new technology, then go to business school hoping to take new ideas into management, only to find the health service resistant to change.

“My plan had always been to be an operational manager in the NHS. And then when I went back to healthcare to be a consultant, I realised, actually, it's really difficult in a big organisation in the NHS to make the change that I wanted to - it's a big, slow organisation.”

Mind you, as a woman arriving in the male-dominated world of venture capital she was none too impressed with its culture at first:

“Health tech investing doesn't have many women, has even fewer women of colour. And the women that were there at the time weren't ones in positions of power. So you know, men would be asking me who's writing my cheque for me.” So she decided to set up her own fund.

I wanted to know which areas of healthtech she thought were promising and she named three:

• Deep tech, which mostly means applying AI and specifically machine learning to healthcare,

• Computational biology which she defines as the marriage between biotech and computer science

• Digital health - patient facing tech such as remote monitoring apps or consumer services.

The first two on the list are areas that require great patience from investors, and I put it to Fiona that AI in medicine was a technology where we’d seen plenty of hype but very little delivery. But she says her experience as a radiologist made her excited about it: “I first started investing in the deep tech/AI/machine learning space because it's one that I understood more than others, and I realised the big potential for it.”

She points to two of her fund’s early investments, Subtle Medical, which is using machine learning to improve the variable quality of medical scans and Skin Analytics, a UK based company trying to use AI to diagnose melanoma.

Just as with Charco she is impressed by the way this business has immersed itself in the subject: “They're really making the effort to understand the pathway around this in a way that I've not seen many other startups doing. So they know skin cancer from every possible route, whether it's the patient, the doctor, the nurse, you know, everything.”

But I was struck by the fact that Skin Analytics had been founded back in 2012 and was still at a relatively early stage in its development, with negligible revenues and making big losses. Fiona admitted that it was a “slow journey” but said the company was working closely with the NHS and that was valuable: “To say our startup is being used by the NHS is something that carries weight across the world, but it doesn't necessarily, at the early stage, bring revenue with it.”

It might seem extraordinary that a company ten years old can still be defined as early stage. But Fiona says that healthtech with the need to go through clinical trials and work at the pace of giant organisations has longer horizons than traditional venture capital “and I think that that's something that you have to go into with your eyes wide open.”

She can see a faster impact with her more consumer facing bets in the area of women’s health. She’s backed a Swedish company trying to help women after. their babies are born with issues like postpartum depression - “often women are really well supported until you've had the baby, but once you've had the baby, you're on your own.” Another bet, this time as an angel investor, is on a company called Wild.ai which aims to improve fitness training for women.

Fiona Pathiraja says it may sound cheesy but it is shaping the future of healthcare and improving lives which motivates her: “Healthcare creates an impact every day, whether you work on the shop floor as a radiologist, or whether you're working in investing.” But the old cliché about venture capital is that out of every ten companies you back, seven fail, two just about make you your money back and one is the blockbuster which keeps the fund afloat. It’s early days for Crista Galli Ventures which was only founded in 2019 but if Dr Pathiraja is to realise her dream of transforming healthcare she’ll have to find that blockbuster at some stage.