Crista Galli Ventures, a new early-stage health tech fund in Europe, officially launched last week. The firm offers “patient capital” — with only a single LP (the Danish family office IPQ Capital) — and promises to provide portfolio companies with deep healthcare expertise and the extra runway needed to get over regulatory and efficacy hurdles and to the next stage.
The firm has an initial $65 million to deploy and is led by consultant radiologist Dr. Fiona Pathiraja. With offices in London and Copenhagen, it operates as an “evergreen” fund, meaning it doesn’t follow traditional five-year VC fundraising cycles.
In fact, Crista Galli Ventures’ pitch is that traditional venture isn’t well-suited to early-stage health tech where it can take significantly longer to find product-market fit with healthcare practitioners and systems and then become licensed by local regulators.
To dig deeper into this and CGV’s investment remit more generally, I interviewed Pathiraja about what she looks for in health tech founders and startups. We also discussed Crista Galli LABS, which operates alongside the main fund and backs founders from underrepresented backgrounds at the pre-seed stage.
TechCrunch: You describe Crista Galli Ventures (CGV) as an early-stage health tech fund that offers patient capital and backs companies in Europe. In particular, you cite deep tech, digital health and personalised healthcare. Can you elaborate a bit more on the fund’s remit and what you look for in founders and startups at such an early stage?
Dr. Fiona Pathiraja: We like founders with bold ideas and international ambitions. We look for mission-driven founders who believe their companies can make a real and positive impact on the lives of people and patients the world over.
We will look for founders who deeply understand the problem they are trying to tackle from all angles — especially the patient’s perspective, but also that of the clinician and relevant regulators — and we want to see that they are building their solutions to solve this. This means they will make an effort to understand the complex and nuanced healthcare landscape and all the stakeholders in it.
In terms of founder characteristics, in my opinion, the best founders will be mission driven, able to tell a compelling story, and motivate others to join them. Grit and resilience are important and several of our portfolio companies were founded around 6-8 years ago and they are doggedly continuing to build.
We like to invest across the broad areas of deep tech, digital health and personalized healthcare. We prefer technology solutions that make the lives of patients easier and better and, in some cases, that help support people’s health before they become patients. Part of our remit is also for tech solutions within the healthcare industry, that improve efficiency and productivity of providers.
Driven by a vision of the future of health that is patient-centric, we look for digital-first solutions that help enhance patient pathways through hospital and primary care and help maintain health in those who are well. This is mainly B2B, and in some cases B2C.
Deep tech: This is where AI and machine-learning technologies are used in hospitals to improve diagnosis and treatment of disease by augmenting the work of the clinician. Deep tech is also useful in improving clinician pathways, e.g., improving efficiency of radiology workflow.
Personalized medicine: We see a future where treatments are not generic but tailored to individuals via epigenetics, microbiome or genome. We back companies finding technology solutions in these areas.
You say the fund will not invest in biotechnology or drug discovery, and will also steer away from devices, especially when they are non-software enabled. Why is that?
Our expertise, network and knowledge is in technologies that help patients within the primary care, hospital or insurer part of the healthcare value chain. Thus, we are focusing on what we know.
With a single LP, the Danish family office IPQ Capital, you frame CGV as “patient” capital and therefore well-positioned to invest in the health tech space where early-stage startups often need longer runway and longer development cycles to get to the next stage. You’ve also said previously that “traditional” VC doesn’t work in health tech. However, even though you may be able to be more patient with regards to returns, do you see a risk that companies you back may have difficulty raising follow-on capital that will be — and needs to be — equally patient?
Of course, traditional VC can be beneficial in many ways and has helped healthcare innovators build big European companies in the past. However, the timeline associated with traditional VC can cause stress to younger healthcare startups, who may well need more time to achieve regulatory approval and to develop a proof-of-concept product that gains clinical validation. Especially if this requires access to a hospital environment.
We believe that health tech companies need investors like us on their cap table early, as this will help them stay the distance, and increase their ability to raise money after Series A. Early investment from an investor that understands the healthcare industry and brings a huge amount of empathy and experience to the table, will help a young health tech company pass key milestones at an early stage and provide firm foundations for ambitious growth post-Series A.
Health tech companies need patient investors at the earliest stages, when they are pre-series A, as these investors will be more empathetic toward the longer timelines required to get through regulatory hurdles and clinical validation studies in hospital environments, which typically occur earlier in a company’s life.
The role of traditional VC and growth investors comes in later, when raising later rounds, to help these companies scale to become successful businesses. Essentially, we want investors like Crista Galli Ventures to get on the cap table early, so health tech startups are insulated from potentially problematic timelines early on and not nudged to speed up at the critical clinical validation stage.
The notion of slower timelines leading to success is seen in several of our own portfolio companies who were founded up to eight years ago (e.g., Quibim in Valencia and Skin Analytics in London) and are now at the stage of publishing excellent clinical trials, selling outstanding products and successfully raising a Series A in the past few months. Timelines can be slower early on in health tech and early-stage startups need investors who understand this journey and are patient in their approach.
On a personal note, what made you decide to take the leap between consultant radiologist to tech investing?
I loved that every patient interaction in medicine is meaningful. However, from very early on in my medical career, I wanted to create change in healthcare and realized that hospitals are not the place to do this. In hospitals, timelines for change are very slow, given that they are part of a very large process-driven organization, where change usually comes top-down. I also realized that healthcare is digitizing now, and that I wanted to be involved in shaping its future.
Investing in health tech means I get to meet amazing founders and co-investors who believe as passionately as I do in building the future for patients and clinicians. I believe in driving change from the ground up; when I was at UCLH, I led a grassroots initiative to get newly qualified junior doctors running projects to improve the hospital in small ways. I think this outlook lends itself well to working with people who are creating disruptive technologies in healthcare.
Related to this, I understand that part of your thesis is that innovation within the NHS (and other healthcare systems) needs to come from the “outside” rather than the “inside.” Yet, as recent examples have shown, such as Babylon and the way it arguably distorts the way primary healthcare is funded, won’t this risk unintended consequences?
Hospitals are often hubs of innovation and research, but they often work in silos and the pace of adoption of innovation is much slower than on the outside. Interestingly, COVID-19 has turbocharged some changes in clinician attitudes to adoption of technology. For example, hospital consultants have adapted well to virtual appointments during the pandemic. In the NHS, there are bodies such as NHSX that catalyze cross-sector innovation between public sector hospitals and startups, such as the AI in Health and Care Award 2020.
Critically, private organizations and public bodies need to work in conjunction with each other to ensure that the patient safety and quality of care are preserved at all times. Everyone in health tech should remember that the patient is at the centre of all we do. This should be the core tenet of making cross-sector collaboration a success.
More broadly, how do you think about collaboration between outsiders (startups) and insiders and all the various stakeholders, such as practitioners, patients, regulators and funders, within what are by their very nature, complex health systems?
In order to be successful, startups need to work well together with the various stakeholders in healthcare. This is complex as there are so many, and they often have misaligned incentive structures. What this means in reality is that founder teams should be humble and take the time needed to speak to (and really listen to) patients, doctors, regulators, etc. If they can understand the patient journeys and clinician pathways within the wider context of health economics and regulation, etc, then they will find where they can truly add value.
We have just invested in Skin Analytics, who work on creating AI tools to diagnose skin cancer. They really understand the dermatology pathways in a primary care, insurance and hospital setting, and have gone out of their way to work with clinicians and patients to produce high-quality research and create a top-notch product. True collaboration breeds success but it takes time and patience.
Let’s talk about Crista Galli LABS, which you describe as a separate investing strand aimed at redressing the diversity imbalance in health tech. The idea is to back health tech startups at pre-seed that are led by “outstanding founders from underrepresented backgrounds.” Can you define “underrepresented” and exactly how this strand will work in practice?
When I was in hospital, there were people from all backgrounds there and this was the norm in hospital. This really wasn’t my experience when I started investing. I am struck by how homogenous both founder teams and investment teams can be. Whilst our core investment focus is seed and Series A, Crista Galli LABS invests smaller ticket sizes in outstanding pre-seed founders and ensures that at least 50% of these are from underrepresented backgrounds. This means those who are female, BAME, LGBT to start with.
From a personal viewpoint, I don’t see enough people like me in health tech. I like the quote “You can’t be what you don’t see” and this is true at all levels. Had I not gone to an elite business school and met my business partner, I might never have considered investing. I am very aware of the privilege that I have had, and I want to ensure that at Crista Galli Ventures, we ensure that we extend a hand to support those who might not see themselves as a health tech founder.
You also note that in the eyes of investors, health tech are often required to have an “elite education” in deep tech (MD or Ph.D.), which means that those from more diverse backgrounds are often excluded. But that sounds like an education pipeline issue as much as anything, or is educational background less important than most VCs within health tech believe?
You’re right, the education pipeline is part of the issue, and we fully support the movements that are aiming to get more people from underrepresented backgrounds into MD or Ph.D.-level education.
At Crista Galli Ventures, we are committed to pulling every lever that we can, which is why Crista Galli LABS are doing pre-seed investments in outstanding founders, with a focus on those from underrepresented backgrounds.