Health-tech startups need patience; deep-tech’s in favour now: Endiya Partners' Ramesh Byrapaneni
Cardiologist and entrepreneur-turned-venture investor Dr. Ramesh Byrapaneni is the managing director of Endiya Partners. He has spearheaded the firm's investments in SigTuple, EyeStem, Sugar.fit, AquaExchange, among other startups.
In July 2023, Endiya made a Series B investment in Zluri, which raised USD 20 million. Endiya Partners has USD 100 million under management and counts HR software venture DarwinBox and health and wellness platform Cure.fit among its early investments. In October, the venture-investor firm participated in the USD 11 million Series A fundraise in Sugar.fit, which focuses on diabetes reversal. In an interview with ET Prime, Byrapaneni discusses healthcare ventures, why many of them haven’t been able to build scale, and governance issues in startups. Edited excerpts:
Q: Very few startups in India have been able to build scalable, profitable ventures. And they have faced governance issues. Early-stage investors failed to do adequate due diligence. Your comments on it.
A: If you are specifically talking about startups in the digital-health sector that directly engage with consumers, such as online consultation platforms, online pharmacies, diagnostics aggregators, and surgery aggregation platforms, you may be right.
Several factors are at play here, including an overestimation of the Indian market size, the frequency of consumer usage, and an underestimation of customer acquisition costs. Nonetheless, there are other startups within the health-tech industry, such as those focused on digital medicine/digital therapeutics, medical devices, and life sciences, that remain somewhat under the radar. These ventures may not require vast sums of investment, but they do necessitate time for development, navigating regulatory hurdles, and initiating commercialization. Unfortunately, these endeavors often go unnoticed and don't receive the attention they deserve.
Regarding the issue of inadequate due diligence by early-stage investors, it's challenging to comment definitively since we haven't invested in many direct-to-consumer digital-health startups. However, the startups we do invest in, we take comprehensive measures. In addition to leveraging our own in-depth domain knowledge, we consult with numerous experts in the relevant field. For example, before investing in EyeStem, a cell-therapy company working to find a cure for a seemingly incurable condition like age-related macular degeneration (Dry AMD), we engaged in discussions with some of the world's leading scientists in that field.
Q: The last few years have shown that the startup landscape can be brutal. There are very few success stories, and the founders’ role has been questionable in several instances. What are the reasons, and how can this be corrected?
A: A significant contributing factor to the failure of some startups has been the excessive focus on achieving rapid growth at any cost and attaining unicorn status. In recent times, there has been a shift towards rectifying this approach by giving precedence to more relevant metrics, such as profitability, customer retention, and prudent cash management, when making critical business decisions.
Health-tech entrepreneurs and investors need to approach this sector with a distinct perspective. Building a successful company in the health-tech space demands patience. Multiple stakeholders are involved, including consumers, healthcare providers, clients, and regulatory authorities. Gaining the trust and confidence of all these stakeholders is crucial for success.
It's worth noting that in the health-tech industry, it may take several years, perhaps 5-6 years or even longer, before revenues start to materialize. Comparing the revenue trajectory of health-tech startups to those in e-commerce or B2B SaaS would be an inaccurate benchmark.
Q: Healthcare ventures, one of your focus areas, in the B2C space act more as middlemen and have not been able to address patient needs. They are interested only in their commissions.
A: Ultimately, if the entire ecosystem of relevant stakeholders does not derive sufficient value from such a system, it is destined to fail. Consider a scenario where a platform involves key players like end-users (patients), service providers (such as diagnostic centers or hospitals), and payers (such as insurance companies). The success of such a platform hinges on its ability to satisfy all three stakeholders. Neglecting even one of these stakeholder groups can lead to failure.
Healthcare systems have encountered challenges in various parts of the world, becoming cumbersome and placing a substantial financial burden on governments while remaining inaccessible to a significant portion of the population. There exists a plethora of opportunities for entrepreneurs to address these pain points and create sustainable enterprises that genuinely serve the needs of patients and other stakeholders.
Q: Has the funding winter gone away?
A: I believe there is ample funding available for promising companies. Many of the companies we are associated with are actively raising rounds. However, it's worth noting that deep-tech companies, in general, may face challenges in attracting investor interest compared to startups targeting consumer markets.
Paradoxically, the current environment is favorable for deep-tech startups, as investors have begun to show increased interest in this sector after experiencing setbacks with investments in so-called ‘fast-moving’ consumer startups.
Q: How do you select ventures to invest in? What are your focus areas?
A: Choosing the right ventures for investment is often the most challenging aspect of our work, particularly when we invest at such an early stage with limited proof points. While we employ various templates and processes to guide our decision-making, there are instances where gut feel plays a significant role.
Your intuition processes a multitude of information beneath your conscious awareness. That said, there are several key criteria we consider, including the significance of the problem the venture aims to address, the depth and intellectual property of their solution, the passion and resilience of the team, and the size of the target market.
My primary focus area is health-tech, which I categorize into three sub-sectors — digital health, medical devices/medical implants, and life sciences.
Each of these sub-sectors encompasses a broad range of technologies and innovations. For instance, digital health involves technologies that engage consumers in wellness and health-related activities, while digital medicine consists of evidence-based software and hardware products designed to measure and/or intervene in human health. Digital therapeutics, on the other hand, delivers medical interventions directly to patients through clinically evaluated software, addressing a wide spectrum of diseases and disorders.
Q: Which venture (or ventures) in your portfolio do you see becoming a large company in the next 10 years?
A: Some ventures might be acquired before achieving large-scale status if there is insufficient interest from growth investors to support their journey to the pinnacle. Nevertheless, we do have several companies within our portfolio that exhibit the potential to attain such heights.
That said, I have high expectations for the following companies operating in the health-tech space, as I foresee them evolving into significant enterprises over the next decade — Sugar.fit, EyeStem, SigTuple, and Mylo. Sugar.fit focuses on diabetes; EyeStem operates as a platform technology for the development of stem-cell therapies; SigTuple is a health-tech AI company specializing in hematology and histopathology. It employs a combination of optics, robotics, and AI to aid in medical diagnosis by analyzing visual medical data, while Mylo caters to young parents' needs.
Q: Are you still practicing cardiology? What made you look at startup investments?
A: I am no longer practicing as a cardiologist. Investing in startups is a demanding full-time commitment. Early-stage investments require substantial time and effort, extending beyond attending monthly board meetings. Many startups benefit from hands-on guidance, and the process can be akin to nurturing and developing them, much like raising children.
I dedicated 25 years to practicing cardiology, and during that time, I not only focused on my medical specialty but also managed my own hospital. After this experience, I felt it was the right moment for a change. While one option was to re-enter the realm of entrepreneurship, I ultimately decided to channel my support toward entrepreneurship by becoming an early-stage investor. I chose the latter path because I am drawn to the inherent uncertainties and challenges of early-stage entrepreneurship, which I find truly engaging and fulfilling.
