3 Healthtech VCs on Managing Burn and Raising in a Downturn

It’s back. The age-old dilemma for every startup founder: How do you balance the tightrope walk between managing burn and achieving growth?

In this environment, every founder is dialed in on that P&L sheet. At the same time, there’s an impetus to still grow and hit that next milestone. It’s a nerve-wracking dance—you don’t want to go too hard and end up pockets-empty before the next chance to fundraise. Because, let's face it, waiting around for interest rates to drop is like waiting for Tom Brady to retire. (This time it’s definitely happening. Or is it?)

So what are venture capital leaders telling their portfolio companies behind closed doors? A.Team teamed up with Elion Health to host a panel with three top VCs—each of them with a special connection to the healthcare industry—so that we could go deeper on these questions. Elion Health co-founder and CEO Bobby Guelich moderated a panel featuring Stephanie Weiner, an investor at FirstMark, Brenton Fargnoli, M.D., managing partner at AlleyCorp, and Morgan Blumberg, an investor at M13. These are their three biggest takeaways on how to manage burn in a downturn. 

(Spoiler: None of the steps are “lay off exactly seven percent of your staff.”

Use the ‘Monkeys & Pedestals’ framework to prioritize your resources

The way Stephanie Weiner of FirstMark sees it, founders need to have one of two things in this uncertain market: 18 months of runway or a path to profitability. (For earlier stage companies, she says, there’s some wiggle room).

Fair enough. But how should founders prioritize the resources they do have? That’s a trickier question. Weiner said the go-to framework they use inside Firstmark is the Monkeys & Pedestals framework: “Say you have to train a monkey to juggle fire and knives while standing on a pedestal. Which is harder? Building the pedestal or training the monkey to juggle fire? Building a pedestal takes some effort but it's not a question of whether or not it can be done.”

You can put off teaching the monkey to juggle fire, but only for so long. 

This forces a company to take a step back and ask the big question: “Are we training monkeys? Or building pedestals?” 

“Make sure that you’re allocating your resources against the hardest problem that you need to solve before the next round—especially if you don't have 18 months of runway,” she advises.

Optimizing your landing pages or updating your sales collateral with that new branding is likely a pedestal. The juggling monkey is the big, complex initiative that’s the existential key to whether your company works or not. You can put off teaching the monkey to juggle fire, but only for so long.  

You can still fundraise if you’re early stage—but late stage is trickier

AlleyCorp invested a hundred million dollars last year, about half of which went into healthcare and healthtech. Managing partner Brenton Fargnoli said this proves that there’s still a lot of action, particularly in seed and pre-seed companies. On the other hand, pre-IPO is largely frozen.

“Regardless of the stage, the vibe has moved from FOMO to fear,” Fargnoli said. “Rounds are taking longer. Before it was like you would wake up and there’s a term sheet waiting on your bed. Now it's like six months of diligence and question after question.”

His macro-take? The fact that the IPO window is closed right now is “frankly irrelevant,” at least for early-stage investors like him. He’s willing to wait two, three years, even more, for that window to open back up. 

“At the early stage, we're still quite optimistic,” he said. “And we're putting our money where our mouth is.”

Attract investors with a creative GTM strategy

There is a way to stand out in the super-crowded digital health market, at least if you ask Morgan Blumberg of M13.

On the consumer side the go-to-market costs are pretty high. The payer employer channels are very crowded. If you say that's your GTM plan? “It’s hard,” she said.

But she’s optimistic if she sees a creative GTM strategy that shows scrappiness on the part of companies reacting to the crowdedness of the space.

“You can't just spend a lot of money on paid ads. But D2C2B has been pretty interesting. That means finding patients direct-to-consumer, and then using that as a wedge into their provider or into their health system.”

She’s even seen B2B2C2B—which quite frankly is dizzying to read—meaning that you meet the consumer at the provider point, and then using that consumer as a flywheel to acquire other providers.

“These GTM approaches can be a great way to differentiate your company,” she said.

Bonus: the most interesting AI use cases in healthcare

Before the end of the panel the moderator, Bobby Guelich asked the obligatory AI question—had anyone seen interesting applications in health care?

Fargnoli pointed out that while mistakes are unacceptable in areas like radiology and psychology, when it comes to administrative tasks 99.9% accuracy is actually great. And given what we know about the error-prone nature of large language models like ChatGPT, the use cases are more about making companies more effective, rather than using AI for its own sake.

Take an inherently difficult thing for humans, like analyzing a large insurance document with endless fine print and make it intelligible with AI—now that’s really useful.

And maybe before long, it’ll even be able to teach a monkey to juggle fire.