Christoph Kausch, managing partner at MTIP, speaks to Real Deals about the opportunities and challenges of investing in healthtech and how to scale up businesses within the sub-sector.

Healthcare was one of the key investment verticals that benefited from tailwinds in the wake of the Covid-19 pandemic. What is the picture three years on from that in terms of opportunities and, therefore, dealflow?

Christoph Kausch: Fuelled by Covid-19, digital health investments around the world hit an all-time high of $59.6bn in funding in 2021. 

The pandemic has helped highlight the importance of digital health, accelerated digitalisation and changed patient expectations about care delivery, with models like telemedicine becoming more commonplace and trust in digital solutions increasing.

Healthcare providers were faced with an urgency to come up with innovative solutions in digital healthcare.

Despite the rapid drop in funding and valuations in 2022, with players like Teledoc having seen up to 90% decline in valuations on the listed stock market, Covid-19 sparked the move to rebuild healthcare in a more affordable, accessible and efficient way that can’t be undone. It has paved, and will continue to pave, the way for healthtech startups to become more visible and noticed by the public and potential investors.

Since our inception, dealflow increases year after year have generally been consistent. At the moment, however, the market environment is obviously quite uncertain. Most companies have tried to avoid fundraising if they can, as valuations plateau at best and drastically decline at worst, especially for direct-to-customer consumer businesses. 

As a result, we’ve been getting increased dealflow from companies that have not been able to proceed into the next 12 to 18 months without any additional financing. From an investor perspective, it’s a good time to seek investment opportunities, but at the same time it’s understandable that investors are extra cautious.

What opportunities do you see in healthtech, especially in comparison with more generalist healthcare strategies?

Kausch: At MTIP, we recognise the complexity of the healthcare ecosystem. Investing in healthtech requires, firstly, a specific sector expertise at the intersection of healthcare and tech.

For us, everything in which IT and digital solutions are applied to the old-fashioned healthcare industry is basically in scope.

It can even go as far as cybersecurity for hospitals. With that said, most of the deals from our second fund have been in digital solutions for the pharmaceutical industry, as the business need for that industry is enormous. Traditional specialist investors, on the other hand, focus on pharma, biotech, medtech or tech. 

Secondly, healthtech investing requires operational experience to support portfolio companies’ growth and international market expansion. As an investor with healthtech expertise, we are well connected with key people in our space, which improves our ability to identify opportunities in prospective investments in a more efficient manner. Sharpening our focus builds credibility and trust with the prospective management teams of our portfolio companies.

What is your sweetspot in terms of the types of businesses you like to back?

Kausch: At MTIP, we are committed to investing in the most innovative companies that can revolutionise the global healthcare system while generating top-quartile returns to our investors, by improving health outcomes and reducing medical costs. Our purpose is to empower innovation that improves lives by leveraging key emerging technologies such as artificial intelligence, cloud computing, big data and virtual reality for solutions that improve the accessibility, affordability and quality of care. We do this across digital health products, tech-enabled healthcare services, and connected medical devices. 

As a growth equity investor, we focus on bridging the gap between venture and Ebitda+ buyouts, investing at a key inflection point for minimal risk and outsized returns. MTIP invests primarily in scale-up companies that have demonstrated a good product or market fit, significant market traction, as well as a clear pathway to profitability. We have invested in companies with growth rates of an average 60% year on year, with some expanding by even more.

How do you approach value creation? Are the needs of entrepreneurs and management teams in that space different?

Kausch: We believe it is crucial for success to be a hands-on, value-adding impact investor. We do see ourselves as the sparring partner for the executive team and supporting their successful international scale-up without taking over operational roles.

Typically, our active ownership investment approach can be clustered around the following areas:
– Leading the negotiations and driving due diligence
– Having a strong voice on the portfolio company’s board to set and agree on the strategic direction
– Guiding the company for international expansion, which can be complemented by buy-and-build strategies
– Providing expertise through our in-house data scientist, medical doctor, biomedical engineers, investment and tech professionals
– Supporting organisational development as well as the selection of C-suite and board-level hires
– Institutionalising the company by strengthening governance, financial reporting and HR
– Being the largest equity shareholder, as we are in all of our Fund II investments.

Next to capital investments, making operational improvements to create value requires deep sector expertise and that’s where MTIP comes into play. With each investment, our knowledge of the sector increases and our industry clout gets stronger, so we can also bring this to portfolio companies.

What is a standout example from your portfolio that encapsulates your strategy?

Kausch: All our portfolio companies encapsulate our strategy well, but let’s take the first investment from our second fund: Oviva, a digital platform that simplifies the management of chronic diseases. The company works with dietitians to deliver personalised coaching, nutrition and lifestyle advice to patients living with diabetes and obesity, to empowering them to change their eating and lifestyle habits.

I knew the CEO, Kai Eberhardt, since we both worked at McKinsey. At MTIP, we followed the progress of Oviva from the start and once the company established successful operations across Germany, the UK and Switzerland and reached sizable revenues, we decided it was the right time to invest. By summer 2019, the company had treated more than 100,000 patients, and scientifically proved its claim in the market, with customers willing to pay for the product on a recurring basis. Then, in December 2019, we led the $21m series-B financing round and have been the largest shareholder since then. 

Following accelerated growth, we concluded an $80m series-C financing round with substantial continued investment from us. I have represented MTIP on the board of directors since the investment, supported by Magdalena Plotczyk from my team, and we remain in close contact with the management team, speaking on a weekly or bi-weekly basis. To date, Oviva has treated more than 400,000 patients and been able to demonstrate consistent growth over the years.

Healthcare investing has significant ramifications when it comes to societal impact. How do you approach ESG as an investor?

Kausch: MTIP is an impact investor and seeks solutions addressing the world’s most pressing challenges in healthcare. Thus, taking ESG aspects into account does not only create value for companies, but also for investors and other stakeholders by tackling risk management as an opportunity to grow and establish added value. 

At MTIP, we start by checking whether a company fits our ESG criteria, which it might not if, say, it has suppliers that work with the military industry. If it fits our ambition by providing a solution that creates better accessibility, affordability and quality of healthcare, then we start our due diligence process, which includes a detailed ESG questionnaire that is analysed as part of our investment decision.

Of course, we don’t expect companies to already have all ESG practices set up at our point of entry. Together with the company, we create a plan of what we need to see in the future and then regularly discuss with the board how it has improved on these dimensions.

We have been signatories to the United Nations Principles for Responsible Investing since 2017 and made it our purpose to adhere to the six principles. We also are proud to be SFDR Article 9 compliant with MTIP Fund II, which is characterised as one of the first ‘dark green’ funds, with its products targeting sustainable investments.

Moreover, we are working with all our portfolio companies to actively align with the United Nations’ Sustainable Development Goals (SDG). Of these goals, good health and wellbeing (SDG #3) is our primary focus, but we also seek to incorporate gender equality (SDG #5), industry, innovation and infrastructure (SDG #9), reduced inequalities (SDG #10), and sustainable cities and communities (SDG #11) into our decision making, to create a lasting impact for society.

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