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Expert: How to strengthen Houston’s $555 million medtech sector

Houston — home to the largest medical center in the world — needs access to more early stage funding for medtech companies. Photo by F. Carter Smith/courtesy of MD Anderson

Houston, an important hub for healthcare and life-science ventures, continues to see significant support for those sectors. And the city’s infrastructure around life-sciences and healthcare continues to grow. Most recently, the Texas Medical Center announced an increase in the size of its TMC Venture Fund to $50 million from $25 million. The Venture Fund was launched in 2017 to invest in Houston-area medical technology organizations and initiatives.

The city is on the leading edge when it comes to investing in digital health startups and the entrepreneurs who launch them. Nationwide, venture capital financing for medtech increased 67 percent from 2017 to 2021, with total financing approaching $20 billion, according to Deloitte’s new study, New Strategies for MedTech Startups. Financing deals for medtech organizations in Texas totaled $555 million during that time. That’s the fourth-largest total in the country, behind California, Massachusetts, and New York.

What investors are paying the most attention to are late-stage diagnostic and digital companies, according to the report. Among the hot spots for funders: AI technologies, at their highest funding level in five years; in-vitro diagnostics (IVD) and healthcare IT, both of which have dominated medtech fundraising over the last decade, raising $48 billion and $36 billion, respectively.

What could use more support are early-stage companies, the kind that get seed and series A funding. The study found that funding for them has dipped to 23 percent of total medtech VC funding in 2021 from 27 percent in 2017. Why? Yields are lower for medtech investors compared to other sectors, and reimbursement for new technologies can be difficult to achieve, meaning companies can’t get paid for their goods or services. Additionally, pandemic-induced factors, such as supply-chain issues, have also impacted funding.

Ever creative, many Houston-area early-stage entrepreneurs are looking to alternative kinds of finance, including pre-revenue IPOs and SPACs to gain entry to public markets as well as build-to-buy, where a medtech incumbent takes an ownership stake with an option to buy the company. They’re also looking to family office investment groups—family-run, generally mission-driven investors who tend to be less formal than VC funds—for financial support.

And venture capital is more than willing to invest in companies, according to the investors interviewed for the Deloitte study. Companies with strong management teams, scalable technologies that address unmet needs for a large market, technologies with low regulatory and reimbursement barriers, and products that can reduce the overall cost of healthcare will catch their attention. Bonus points for efficient, forward-looking companies, too.

Attention to these smaller firms is crucial and necessary, given that 94 percent of the 15,500-plus medtech firms in the United States are pre-revenue or have no revenue at all. Houston is home to plenty of these smaller firms with big potential. Investors would do well to look at them as long-term investments and support them by helping to lay the groundwork for regulatory and reimbursement success, in addition to investing financially.

In adopting this approach, the VC community can make significant strides towards bolstering an already strong medtech ecosystem in Houston.

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Kevin Wijayawickrama is principal at Deloitte and works on the company's risk and financial advisory team.

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Building Houston

 
 

Here's your one-stop shop for innovation events in Houston this month. Photo via Getty Images

Houstonians are transitioning into a new summer month, and the city's business community is mixing in networking and conference events with family vacations and time off. Here's a rundown of what all to throw on your calendar for July when it comes to innovation-related events.

This article will be updated as more business and tech events are announced.

July 10 — Have a Nice Day Market at the Ion

Stop by for a one-of-a-kind vendor market - #HaveANiceDayHTX - taking place at the Ion, Houston's newest urban district and collaborative space that is designed to provide the city a place where entrepreneurial, corporate, and academic communities can come together. Free to attend and free parking onsite.

Have a Nice Day is a creative collective with a goal of celebrating BIPOC makers, creators, and causes.

The event is Sunday, July 10, 4 to 8 pm, at The Ion. Click here to register.

July 12 — One Houston Together Webinar Series

In the first installment of the Partnership's One Houston Together webinar series, we will discuss supplier diversity an often underutilized resource for business. What is it and why is it important? How can supplier diversity have long-term impact on your business, help strengthen your supply chain, and make a positive community impact?

The event is Tuesday, July 12, noon to 1 pm, online. Click here to register.

July 14 — Investor Speaker Series: Both Sides of the Coin

In the next installment of Greentown Labs' Investor Speaker Series, sit down with two Greentown founders and their investors as they talk about their experiences working together before, during, and after an equity investment was made in the company. Attendees will get a behind-the-scenes look at one of the most important relationships in a startup’s journey and what best practices both founders and investors can follow to keep things moving smoothly.

The event is Thursday, July 14, 1 to 2:30 pm, online. Click here to register.

July 15 — SBA Funding Fair

Mark Winchester, the Deputy District Director for the Houston District Office of the U.S. Small Business Administration, will give a short intro of the programs the mentors will discuss. There will be three government guaranteed loan mentors and two to three mentors co-mentoring with remote SBIR experts.

The event is Friday, July 15, 10:30 am to 1 pm, at The Cannon - West Houston. Click here to register.

July 16 — Bots and Bytes: Family STEAM Day

Join the Ion for a hands-on learning experience to learn about tech and robotics and gain insight into the professional skills and concepts needed to excel in a robotics or tech career. This event will be tailored for 9-14-year-olds for a fun STEM experience.

The event is Saturday, July 16, 10 am to 1 pm, at The Ion. Click here to register.

July 19 — How to Start a Startup

You have an idea...now what? Before you start looking for funding, it's important to make sure that your idea is both viable and valuable -- if it doesn't have a sound model and a market willing to pay for it, investors won't be interested anyway.

The event is Tuesday, July 19, 5:30 to 7:30 pm, at The Ion. Click here to register.

July 20 — Perfecting Your Pitch

Join the Ion for their series with DeckLaunch and Fresh Tech Solutionz as they discuss the importance and value of your pitch deck when reaching your target audience.

The event is Wednesday, July 20, 5:30 to 6:30 pm, at The Ion. Click here to register.

July 21 — Transition On Tap: Investor Readiness with Vinson & Elkins LLP

Attorneys from Greentown Labs’ Gigawatt Partner Vinson & Elkins LLP, a leading fund- and company-side advisor for clean energy financing, will present an overview of legal considerations in cleantech investing, geared especially toward early-stage companies and investors. The presentation will cover the types of investors and deals in the cleantech space and also provide background on negotiating valuation, term sheets, and preparing for diligence.

The event is Thursday, July 21, 5 to 7 pm, at Greentown Houston. Click here to register.

July 28 — The Cannon Community 2nd Annual Town Hall Event

Partner of The Cannon, Baker Tilly, has played an integral part in the success of Cannon member companies. Join the Cannon community for The Cannon's 5-year anniversary celebration!

The event is Thursday, July 28, 4 to 7 pm, at The Cannon - West Houston. Click here to register.

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