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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 latest roundup of innovation news you may have missed. Photo via Getty Images

It's been a new month and a few Houston startup wrapped up November with news you may have missed.

In this roundup of short stories within Houston startups and tech, three Houston startups across health care, space, and sports tech have some news they announced recently.

Houston digital health company launches new collaboration

Koda Health has a new partner. Image via kodahealthcare.com

Houston-based Koda Health announced a new partnership with data analytics company, CareJourney.

"This collaboration will aim to develop benchmarking data for advance care planning and end-of-life metrics," the company wrote on LinkedIn. "Koda will provide clinical and practice-based expertise to guide the construction of toolkits, dashboards, and benchmarks that improve ACP programs and end-of-life outcomes."

Koda Health announced the partnership in November..

“Beyond the checkbox of a billing code or completed advance directive, it’s important to build and measure a process that promotes thoughtful planning among patients, their care team, and their loved ones,” says Desh Mohan, MD, Koda's chief medical officer, in the post.

CareJourney was founded in 2014 in Arlington, Virginia.

"I'm hopeful next-generation quality measures will honor the patient’s voice in defining what it means to deliver high quality care, and our commitment is to measure progress on that important endeavor," noted Aneesh Chopra, CareJourney's co-founder and president.

Sports tech startup raises $500,000 pre-seed investment

BeONE Sports has created a technology to enhance athletic training. Photo via beonesports.com

Houston-founded BeONE Sports, an athlete training technology company, announced last month that it closed an oversubscribed round of pre-seed funding. The company announced the raise on its social media pages that the round included $500,000 invested.

Earlier in November, BeONE Sports completed its participation in CodeLaunch DFW 2022. The company was one of six finalists in the program, which concluded with a pitch event on November 16.

Space tech company snags government contracts

Graphic via cognitive space.com

The U.S. Air Force has extended Houston-based Cognitive Space’s contract under a new TACFI, Tactical Funding Increase, award. According to the release, the contract "builds on Cognitive Space’s work to develop a tailored version of CNTIENT for AFRL to achieve ultimate responsiveness and optimized dynamic satellite scheduling via a cloud-based API.

The $1.2 million award follows a $1.5 million U.S. Air Force Small Business Innovation Research award that the company won in 2020 to integrate CNTIENT with commercial ground station providers in support of AFRL’s Hybrid Architecture Demonstration program.

“The TACFI award allows Cognitive Space to continue supporting AFRL’s vitally important HAD program to help deliver commercial space data to the warfighter,” says Guy de Carufel, the company’s founder and CEO, in the releasee. “CNTIENT’s tailored analytics platform will enable HAD and the GLUE platform to integrate modern statistical approaches to optimize mission planning, data collection, and latency estimation.”

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