Dr Pankaj Jethwani, Executive Vice President, W Health Ventures in an interaction with Viveka Roychowdhury talks about his company’s current investments in India and highlights the various parameters considered while investing in a new technology or company
As a primary care physician turned investor, what would be the red flags you look out for when judging the promise of a company to back for an IPO, or add to your portfolio, a start-up with new technology looking for angel funding, etc? Are there particular segments within this sector where it is more difficult to judge promise/potential objectively?
The red flags to judge a potential IPO backing would constitute a founding team that is either not mission-oriented and driven to impact lives using their healthcare solution, or does not have insights into the patient journey and their pain points. Also, companies that are not focused on perfecting user experience and substantially improving clinical outcomes.
The question of segments where promise or potential is difficult to judge- it is because the healthcare services delivery businesses are typically hard to scale as it takes time to build patient trust. For me as a physician, bringing that lens and patience is critical while evaluating companies.
On the other hand, healthcare and wellness consumer product companies also tend to see high initial growth powered by disproportionate marketing spends on fairly low customer acquisition costs (CAC). Thus, it becomes important to look at metrics such as retention, repeat order behaviour, evolving CAC, and ultimately, the company’s competitive differentiation. High initial growth can be misleading, and we have seen some promising health and wellness brands plateau out at ~Rs 100 crore Annual Recurring Revenue (ARR).
What are the most promising areas in the healthcare space? What is the exit strategy and ROIs for W Health Ventures, can you give examples from companies which the funds have existed since it was founded in 2020?
The healthcare sector is seeing some interesting innovations. Vertically integrated platforms that address users’ healthcare need right from diagnosis to management are offering comprehensive, one-stop, solutions to patients. This enables the start-up to capture a patient’s entire spending, allowing healthy returns on the customer acquisition cost. One such company targeting women’s health space in our portfolio is Mylo – a platform that provides to a community of parents, targeted content, wellness products, and expert health services for mothers and babies.
Given that 66 per cent of healthcare expenses in India are paid out of pockets, the future of healthcare is direct to consumer. Even though there are 600+ D2C brands in India acquiring online buyers, therapy-area-focused brands are missing. We are looking for health outcomes driven start-ups that are combining products with exceptional patient experience – this helps in building trusted brands (lowers CAC), repeat purchases {increase Lifetime Value (LTV)} and tangible health improvements.
W Health started investing in Indian healthcare companies in 2021 and hasn’t exited any of its portfolio companies yet.
What is the company’s rationale for investing in India?
There is a palpable growth in demand being witnessed in India. This has been fuelled by the rapid growth in Internet subscribers to 840 million. Moreover, the growth is driven not only by growth in urban areas but also in rural areas that has seen as many as 337 million rural internet subscribers. This growing base has, in turn, increased the number of people willing to access and trust healthcare delivered through tech-enabled solutions.
Furthermore, the pandemic has driven consumers to focus their spending priorities on healthcare. According to a study by Mintel, spending on healthcare products has increased for 51 per cent of Indians in 2021.
On the supply-side too, things are looking quite promising for newer healthcare solutions. India’s traditional healthcare system has multiple gaps, including a lack of infrastructure and inequitable distribution of the infrastructure across the urban-rural divide (Urban India has 2/3rd hospital beds but has only 1/3rd Indian population). Digital-first companies are actively trying to bridge this gap and this thereby creates a tremendous opportunity for us as a fund.
In addition, government initiatives are also acting as a catalyst for growth of digital health. For example, the National Digital Health Mission (NDHM) is aimed at giving every Indian a Unique Health ID and creating healthcare tech infra. Similarly, National Health Stack – a cloud-based framework will enable seamless Public Health Records access across all healthcare tech systems. Tele-consult guidelines will help establish policy frameworks. All of these will go a long way in helping these new digital players establish their foot-hold in an increasingly health-conscious market.
Another thing that helps is that the exit environment has also become favourable for investors in the last one or two years. All these together have added to our confidence in investing in India.
How does the fund measure value to the end consumer, the patient?
We have developed a robust system of tracking metrics to measure value for users. These include quantitative improvement in measurable clinical outcomes like HbA1c (for diabetes), PHQ-9 (for depression), etc. We also look at improvement in patient-reported behavioural outcomes. Various health conditions have symptoms that are often not measurable but must be tracked. For example, for a PCOS (Polycystic ovary syndrome) management company, we evaluate if patients see improvement in energy levels, period pain, and so forth. Customer love measured by NPS and stats around consumer retention, engagement, and referrals also act as indicators of the product/solution utility.
To track these metrics, we conduct multiple customer interviews and calls to understand the true value of a product to its customers. At the same time, we analyse patient data by studying the clinical outcomes and consumer metrics for comparable cohorts of patients. Last, but not least, we evaluate the processes in place to take, process and improve upon the consumer feedback.
What is the size of funding available and the tentative timeline to exit?
The average first cheque size ranges between $ 3-5 million. As a healthtech-focused fund, we understand that these businesses need patient capital to scale and grow. Hence, the exit timeliness for us varies between 5-7 years for the majority of our investments.
What are their current investments in India and their portfolio companies?
We have spread our investments across a mixed range of companies providing healthcare solutions. These include BeatO, a personalised chronic disease management platform that is helping over 400k Indians manage their diabetes end-to-end. We have also invested in Wysa – a holistic mental health solution powered by an emotionally intelligent AI chatbot, Cognitive behaviour therapy (CBT)-based therapy packages, and world-class therapists, helping 4 million individuals across 65 countries. Our portfolio also includes, GHC a full-stack sexual health clinic for men (Mars by GHC) and women (Saturn by GHC) helping address their problems effectively, discretely, and affordably. And as mentioned earlier, Mylo is our community and content-based platform providing over 4 million parents with a supportive network of parents and experts, relevant educational material, and high-quality products and services.
What is the quantum of investment the company is planning in the Indian market?
We have committed $ 100 M towards improving the healthcare landscape in India and the US.
What are the company’s future goals and plans for the Indian market?
At W Health, we aim to build the future of care delivery in India. Given India’s supply-side constraints in health, for example, only 650 endocrinologists to serve 200 million diabetics and pre-diabetics in India. We believe a technology-first approach is the only way to solve India’s healthcare challenges at scale. Thus, through the companies we fund and found, we aim to impact at least 100 million lives in the next 4-5 years.
Our goal is simple, to build and encourage innovations on the right side of healthcare change and thereby help create a healthcare ecosystem that is inclusive, equitable, and effective.
In tandem with our goals, our plans are straightforward. By funding early-stage companies that are aligned with these goals, we plan to leverage W Health’s resources to support the founders in growing the company. We plan to do this by incubating companies that are building solutions for addressing the various gaps in the Indian healthcare paradigm and by bringing in learnings from the US to help our portfolio companies innovate. We also aim to build greater awareness for healthcare needs and innovate through collaboration and content.
How is the health tech industry in India different vis a vis the US? Especially on the cost front, the lack of health insurance, lax regulation, etc
There are some striking differences between the Indian and US health sectors.
For one, there is a much higher insurance coverage in the US. 91 per cent of Americans are covered by insurance as opposed to 37 per cent of Indians. This leads to 66 per cent of healthcare expenses in India being paid out of pocket as opposed to only 9 per cent in the US. This results in many US healthcare start-ups adopting a B2B model where they are selling to employers and payers. There is also a stricter but more trusted regulatory landscape in the US, when compared to India. The data privacy laws, interoperability framework, and regulatory pathways (FDA) are far more evolved in the US than here. However, all this comes at a cost. Quality healthcare is more expensive in the US. The per capita annual healthcare expenditure in India is less than $100, while that in the US is over $10,000. While in part this is driven by more people in the US consuming healthcare, it is also because of the higher prices for healthcare services in the US. For instance, an RTPCR test in the US could cost upwards of $200 whereas in India it is ~$10-15.
Healthtech innovation is still at a nascent stage in India, at the moment it is synonymous with telehealth and e-pharmacies. The more comprehensive interventional health care models remain at an infantile age, a scenario quite different in the US, where healthcare innovation is more evolved.
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