Observations and Reflections by Edgar-John Vogt
As a Company Scout for German Accelerator with a Life Sciences focus, I have traveled the German startup ecosystem extensively before the Coronavirus placed the country in lockdown mode. I met many interesting and promising early-stage life science startups at pitch events, conferences, or virtually on the telephone. So, when the pandemic hit the country full force, reports on television and social media painted a gloomy picture of the state of the economy and on how that could impact the startup ecosystem overall. Federal and state governments passed financial rescue packages to mitigate the consequences of the crisis for businesses and citizens. It seemed the world had turned upside down and that the path going back to normal with many restrictions could be a long one ahead for everybody. However, with increased public consciousness about science in general and virologists becoming prominent voices in the media, the sense of opportunity for a life science or health-focused startup during this pandemic seemed more tangible and possible compared to other industries.
I wanted to know how startups are coping with this uncertainty. Has the pandemic changed their strategy when it comes to internationalization?
Here is a snapshot of what I have heard and learned in the past several weeks after interviewing CEOs and founders of Life Science startups from different industry segments including medical devices, platform technologies, diagnostics, and digital health. Overall, the companies agreed that while the current pandemic has created serious challenges here in Germany, they are optimistic about the future. After all, every crisis also presents new opportunities.
1. The Human Touch of New Work
With social distancing becoming the new normal during the pandemic and likely continuing for some time, a significant portion of the workforce now is working remotely from their homes. Similarly, life science startups have also switched to working more virtual in their daily operations. Task Force teams have been organized to keep projects moving while relevant ecosystem events, as well as meetings with partners and investors, take place virtually. What seemed impossible on such a large scale only a few weeks ago, has become the only modus operandi and the “new normal” during the lockdown period. Some of these digital solutions are here to stay post-Corona. Take travel for example – one founder asked “will every trip for personal meetings be necessary in the future?” The New Work live experience also seemed to put things in a more humanized perspective. A frequent mantra during the pandemic has been #WeAreInThisTogether. Stakeholders and industry leaders suddenly show glimpses of their private lives as everyone works from home and children and/or pets frequently appear in the background. One CEO finds this down-to-earth and human communication very refreshing and hopes it will stay around for longer.
2. The Emergence of a More Collaborative Atmosphere
The immediate and more negative impacts felt by early-stage life science startups when the lockdown measurements were implemented involved the closure of important facilities. For MedTech startups focused on product development and needing access to labs, or those running (pre-)clinical studies with partners, the lockdown meant that suddenly these studies are on hold. However, new and unexpected opportunities also turned up as CEOs and founders have reported. One example is a cardiovascular medical device company that established a new clinical partnership and other startups writing new grant applications with existing clinical partners. #WeAreInThisTogether also seems to move the ecosystem closer together and startups are certainly stepping up in finding new ways to collaborate.
3. The (Continued) Challenge of Fundraising
As one CEO has accurately pointed out in our conversation, “the timing of the fundraising cycle determines how strongly a startup is affected by the current crisis”. At the beginning of this pandemic, investors were more cautious, focused on their existing portfolio companies, and had a smaller bandwidth for new investments. Some startups reported that personal meetings and talks with investors were either canceled or in some instances investors withdrew from negotiations altogether. On the other hand, some founders had already been engaged in more advanced discussions with investors or had been in more long-term relationships pre-COVID-19. They are optimistic about successfully closing their fundraising efforts in the future, while at the same time keeping an eye on their company’s valuation in the months to come and delaying fundraising if necessary.
4. Refocusing of the Business Model
As mentioned earlier, every crisis also presents new opportunities. Digitalization, for example, has been a great facilitator to deal with the challenges in the face of the pandemic, and digital solutions and services will certainly be the winners to emerge from the crisis. Not every life science startup will suddenly pivot its business model and focus due to COVID-19, but new use cases suddenly become very feasible to enter the market. There is an increased interest in medical device offerings for COVID-19 solutions and for diagnostic testing or remote patient monitoring. Additionally, we already see a strong push for telemedicine – in the U.S. the overall telehealth visits have increased on average by 300% – and digital solutions addressing needs such as mental health are expected to increase as people struggle with social distancing and stay-at-home policies. Another, more general theme in my conversations with CEOs and founders was their awareness to re-think and re-focus their business model. The urgency to act and adapt to the current market situation is truly inspiring and crucial because it will both define and determine their company’s future for a world post-Corona.
5. International Expansion is Still Top of Mind
Global trade has been substantially affected by the pandemic. On top of that, cross border travel came to a halt around the globe. Startups planning to enter new markets and scale globally were suddenly faced with a new reality. So naturally, I was curious if that changed their overall strategy? The overwhelming answer was “No!” However, some of the CEOs and founders I spoke to have begun to shift their short-term focus more to the German and European markets, while others continue to explore their global expansion opportunities, in particular where clearance through a regulatory body, like the U.S. Food and Drug Administration, is required. Therefore, programs that German Accelerator offers for expansion to the U.S. and Southeast Asia are more important than ever to bring strategic advice to high-potential German startups.