The daily for
New Zealand’s Startups

Healthtech investors seek quality over quantity as capital remains tight

Former Infratil CEO Marko Bogoievski’s new investment vehicle is backing medtech companies globally.


Fiona Rotherham

Alimetry founder and CEO Greg O'Grady

Conditions for raising capital are “dramatically different” now from when much-lauded medical device startup Alimetry raised money in late 2021.

Globally, venture capital funding for healthtech companies hit an all-time high in 2021 following the Covid pandemic, but that funding pipeline started drying up last year with rising interest rates and market volatility.

Alimetry – one of 235 active homegrown medical device, digital health and health IT startups – raised $16.3 million in late 2021 in a heavily oversubscribed round that included IP Group and a number of local VCs. It’s commercialising its first product, Gastric Alimetry, which is a wearable medical device that helps diagnose gastric disease.

It’s making good progress on a US$15 million (NZ$24.5 million) Series B capital raise to accelerate expansion in the US, but founder and CEO Professor Greg O’Grady says overall conditions have tightened in line with the macro environment.

There’s still some money for seed stage, as well as at growth stage for healthtech companies demonstrating strong revenues, but for those in between he says the funding environment is dramatically tighter than it was a couple of years ago. “Even then, the deals have changed at the other stages as well – they’re much more weighted towards the investor now.”

Those struggling to get backing have had to revert to survival mode, cutting back on costs to extend their runway or doing bridging rounds and convertible notes from existing investors who are conserving cash for their portfolio companies.

“That just makes the attractiveness of being a founder at the moment much less than it perhaps was a couple of years ago. You’ve got to go through this massive journey of working extremely hard, taking risk, putting yourself out there to be a founder and the rewards have to be there,” says O’Grady.

Scott Pearson is founder of Wellington-based Noted, an online client management system that allows health and social service providers to efficiently record their care of people and whānau. 

Pearson started a seed funding round in late 2022 only to have a proposed investor pull out during 2023. Over the course of the year, the company basically reached break even, with 86 percent growth in committed annual recurring revenue.

Despite the growth, Pearson is struggling to raise capital to expand into Australia.

“We’ve had more trouble raising money than any other year and it’s insane because the company is breaking into bigger and bigger customers; our strategy is being validated, our product’s being validated.”

“At the beginning, when you’re selling the dream it’s easier to raise money than when you’re doing the job and making money because people will then want to measure you on your actual metrics. The more you can raise before you make any money, the better,” says Pearson.

Noted founder Scott Pearson

Tough outlook

Venture capitalists say while there was a tough investment environment in 2023, 2024 will present more of the same. Healthtech, which typically requires more capital and has longer timeframes to market, is being viewed as too high risk by some.

Former Infratil boss Marko Bogoievski smells opportunity. He’s previously invested in biotech company Pictor and online walk-in primary care service Tend Health as a way of putting his money into investments that create impact.

He’s now set up MQB Partners in conjunction with former Caramed Capital partners Caroline Quay, Scott McPhee and Ken Chin. The trio, along with Maxine Simmons, unsuccessfully tried to raise a specialist medtech fund last year. While it was thought there was a market gap for such a fund, Caramed couldn’t secure enough backing to make it viable.

Bogoievski says MQB will now be his main vehicle for health investments.

“One of the issues is it’s a specialist area. I guess that goes without saying almost, but it’s not really a space where I think generalist early-stage investors can participate confidently. You need to be surrounded by qualified, experienced people if you really want to engage in that space.”

The smaller pool of global capital investing in healthcare has created “interesting opportunities” if you have access to capital, he says. 

“This is a time where we can see good science and fatigued cap tables coming at us. It doesn’t mean they are going to be winners but they’re priced in a way that’s a lot more attractive then they would have been three or four years ago.”

“There may be a fund that has run out of options or high-net-worth investors that have just been around a long time and can’t figure out where this idea is going to go and we’re happy to be a lead investment vehicle.”

Bogoieskvi has committed an undisclosed amount of capital to get MQB up and running to scout global deals. It has just made its first investment into a US company that is developing a robotic intubation device, and has two others in the pipeline for this quarter. 

Healthtech investor Marko Bogoievski

MQB is likely to take the lead on any investment, and other high-net-worth individuals or family offices can join in on a deal-by-deal basis after paying the MQB partners a fee for doing due diligence work upfront. 

“It’s very powerful from a marketing perspective because we don’t have to do X number of deals per year; we can do high-conviction deals because we’re putting our own money in and we’re going to go in to help these companies,” says Quay.

Australia and the US are likely to be the main source of deals for MQB, though it will consider New Zealand options.

Quay says the team has the expertise to select winners.

“At the moment there are good quality assets that are cheap, and it really plays to the strength of our team because we will know good assets from bad ones. If there is a distressed asset most of the time you get suspicious, but for us in this space if the science is good and the IP is good and if the stress is because of market conditions, we will know the difference.”

Bogoievski says he has been approached by a lot of medtech startup founders, but didn’t have the skills or capability to help them.

His advice to them was to find the right angel or early-stage investors.

“You’re better off spending more time getting the right investors involved, but that’s easier said than done. You have to do a lot of bootstrapping and realistically you’re going to have to make some huge sacrifices before you can really have serious conversations with large healthtech specialist investors.”

What MQB is seeking in its healthtech investments is similar to other early-stage deals, he says. “The founder has to stack up, the science has to stack up, and quite often you see not just scientists, but other founders that aren’t connected to the addressable market, or so-called product-market fit hasn’t been tested. We look for whether it’s a product the market actually needs or not.”

John Robson, Bridgewest Ventures NZ

Being selective

Bridgewest Ventures NZ, one of the government-funded deeptech incubators, says global supply chain pressures have meant medtech startups have needed more money to hit the milestones they needed to raise their next round of capital.

“Most of the startup companies will run out of capital before they get to an inflection point. It’s not because their strategy is flawed,” says Bridgewest general manager John Robson.

One of Bridgewest’s 10-strong portfolio is Wellington-based startup BioOra, which will soon open a Series A round aiming to raise at least $7.5 million. BioOra was formed in 2022 by Bridgewest in partnership with the Malaghan Institute to automate the manufacturing of CAR T-cell therapy for cancer and develop high-value cell therapy manufacturing capability in this country.

The company plans to start Phase 2 clinical trials early this year, and its ambitious timeline includes hitting commercialisation by mid-2027.

For those founders struggling to get backing, Robson advises staying “super lean” while having a global mindset.

“You have got to have a very distinct plan to be cash flow positive or at least [have] revenue of some sort, and if you’ve got a unique offering then you will get funded. But the problem is all the smaller ones that people were like ‘yeah, we’ll have a crack at that’, they’re going to be wiped out. They won’t get funding.”

There will also be downrounds where company valuations fall compared to previous funding rounds, given many startups will have run out of capital and have few options, he says.

“Founders will need to swallow some rats to change their tech and to focus on the fundamentals of their business, which means some of the projects they’ve had funding for need to be closed and they’ve got to get right back to the basics of 'what is my business model'.”

WNT Ventures partner MJ Alvarez

MJ Alvarez, a partner with deeptech incubator WNT Ventures, says it's seeing a lot of medtech opportunities, but it’s more a case of “quantity over quality”, with many not yetinvestor ready. 

Kieran Jina, a partner with deeptech investor Pacific Channel, agrees saying the fund is seeing the opportunity to “not just choose the best from the rest but the better of the best, which I actually think is a good sign of a healthy functioning market”.

“We’d be better off being a whole lot more selective about those investments and then really providing the financial firepower to get into the next stage,” he says. “That’s why the deeptech funds have a place in the community because their focus is on rather than making a number of bids, to finding what is going to pan out. It’s around doing a lot of diligence upfront to then chose the one of two per year that you can back.”

Pacific Channel partner Kieran Jina

Working together

Robson wants to see more collaboration among VCs because New Zealand is such a small market.

“The amount of money that each startup needs, particularly in healthtech, is way bigger than one fund can sustain. We should partner and work together more effectively. I’m seeing evidence that is what is going to happen. Not all the players though – I won’t mention who.”

Jina thinks offshore investors with deep expertise are needed to scale Kiwi medtech startups.  

“We need to recognise that, even as a fund where we feel like we know a few things, we don’t know everything and it makes sense to bring on other investors. The US is coming back online and I think that is a positive for us.”

Auckland-based medtech startup Formus Labs is planning a Series A round later this year and CEO Ju Zhang says he’s already had contact with US VCs, some of which have been following the company for a while.

Formus raised US$5 million in 2022 for its world-first technology that improves planning for hip replacements and other joint implant surgeries. It has since done a smaller top-up round from existing investors, including GD1, and last year gained FDA clearance for its flagship Formus Hip product.

Zhang says due diligence is taking longer – up to a year for some startups to complete a funding round . 

“You need to do soft DD with them as early as possible – getting to know them, informing them of your strategy and plans, updating them on progress – so that by the time you seriously go to the market they have already done most of the DD on you,” he says.

Since the funding pullback, Zhang says investors are asking different questions. Previously it was 'how fast can you scale if we give you more money?' while now it’s 'how long before you will need to raise again and what revenue can you generate with this funding?'. 

“[It's] a bit more back to the fundamentals,” he says.

Formus Labs founder Ju Zhang

Getting investment ready

According to Callaghan Innovation figures, $370 million has been raised by healthtech companies in the past 12 years – some $250 million of that since 2020.

Since Callaghan’s deeptech incubator programme was started in 2020, 32 startups have been supported with $24 million of repayable grants funding, co-funded by $56 million in private investment. Half of those deeptech startups have been in the health sector. 

The TIN report shows $145 million was raised overall in the last two years to June 2023 across 43 deals, although head of research Alex Dickson confirms tech investment has been tracking down globally.

Proposed regulatory changes to gene technology in New Zealand under the new government could unlock new investment and trial opportunities for the country’s health-focused biotechs, says Dickson. 

Both Jina and Alvarez say New Zealand has a great environment for medtech development because of its regulatory environment and lower costs, but many Kiwi startups fail to fully understand aspects of regulation and reimbursement in their biggest market, the US.

Andrew Clews, Callaghan Innovation’s head of health technology, says many Kiwi startups lack understanding of their place in the market and validating a market need. 

MBIE funded Callaghan’s HealthTech Activator, which provides healthtech innovators and early-stage businesses a wraparound service targeted to their needs. It doesn’t help them raise capital, however.

Clews says it works with US-based insights company the Gerson Lehrman Group, which finds opinion leaders and experts in different fields to engage with Kiwi startups to help them fully understand where their product or solution fits.  There have been instances in the last couple of years where startups have realised they were completely on the wrong track or were blind to a key value proposition.

Clews says other challenges include distribution and getting scale in the US.

“We see companies going for the easiest option in terms of a reimbursement code and then find that whoever they partnered with locally is then repackaging that product in a different way and has gone for a higher-value code as part of a therapy package. The Kiwi company gets a smaller amount of return than the JV or distribution partner does.”

The HealthTech Activator, set up at the end of 2020 in the middle of Covid, now has 1,300-plus users. However, it only has funding until the end of this financial year.  It’s work would dovetail that of Medtech-iQ, the new national medical devices and digital health hub.

The initiative, which involves five universities, Callaghan and three Te Whatu Ora hospitals, is also seeking government funding - $25–$30 million over three years - to strengthen and consolidate initiation/pilot activities, including building the medtech opportunity pipeline from research, grow new and diverse talent, strengthen and expand the Australia New Zealand BioBridge and create regional initiatives to build the local networks that will contribute to Medtech-iQ nationally.

Diana Siew, Medtech-iQ co-chair

Diana Siew, Medtech-iQ hub co-chair, says healthcare is recession-proof because everyone needs it, and Kiwi companies are finding ways to do it smarter.

“Medtech is a long-term play. It’s not like SaaS or F&B where you can make it big without a lot of investment,” she says. “The activity is still growing in this space; we have a number of exciting startups like Formus Labs and Alimetry, but they’re just starting out on their journey. We need more $50 million to $100 million companies.”

Founders need two things to get funded, says Siew: a very good team and quality technology.

“Even through the hard times, the chemistry of those two will see you get investment, but you have to be able to show the addressable market and market fit.”


Fiona Rotherham

Fiona Rotherham has worked at numerous business publications as editor, co-editor and senior journalist. Her passion for startups was sparked while working at former entrepreneur magazine Unlimited of which she was also editor.

6 hours ago

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Suspendisse varius enim in eros elementum tristique. Duis cursus, mi quis viverra ornare, eros dolor interdum nulla, ut commodo diam libero vitae erat. Aenean faucibus nibh et justo cursus id rutrum lorem imperdiet. Nunc ut sem vitae risus tristique posuere.

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
6 hours ago

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Suspendisse varius enim in eros elementum tristique. Duis cursus, mi quis viverra ornare, eros dolor interdum nulla, ut commodo diam libero vitae erat. Aenean faucibus nibh et justo cursus id rutrum lorem imperdiet. Nunc ut sem vitae risus tristique posuere.

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.