The case for increasing representation in digital health investing
When it comes to digital health, investors get a bird’s eye view and play a major role in steering the direction of the industry’s future. That is why many are stressing the importance of a diverse viewpoint for investors in an industry focused on bringing digital tools to the masses.
Traditionally this has been a challenge for the venture space, where women only account for 12.2 percent of digital health VC partners, according to a RockHealth report. While that percentage is higher than at the biggest VC firms in the US, where only 8 percent of partners are women, according to a MassChallenge and BCG report it still only accounts for a small percentage of the industry.
There are actually very few female investors in the health IT marketplace, and in investing in general. It’s a real shame because there is a trickle-down effect that results in female entrepreneurs having a more difficult time raising capital, Emma Cartmell, founder of Cartmell LLC. I do see some incredible female-led health tech companies that have affordable, high-impact solutions that I invest in and support, but they subsequently have a really hard time raising money from VCs.
However, the field is slowly starting to diversify. The number of female digital health VCs increased by 1.3 percentage points from 2017 to 2018. Researchers are also finding that hiring more women onto a VC team can be a smart money move — it is associated with improved fund returns and profitable exits, according to Harvard economists Paul Gompers and Silpa Kovvali.
Diversity makes sense
Digital health products are designed for a diverse group of individuals and settings, so having investors representing different perspectives is key, according to Luba Greenwood, who focuses on strategic business development and corporate ventures at Google Verily.
It is vital in digital health to have people not just on the venture side, but also on the boards and management of digital health companies, that come from different genders, economic backgrounds, ages and different perspectives. The best return on your investment is going to be in companies that are going to do that by working with payers, provider groups, pharmaceutical companies and diagnostic companies. Because you have such different types of companies, you need different perspectives as an investor. You need to understand how the consumer world works.
While gender is an important piece to this puzzle, Sarah Sossong principal at Flare Capital stressed the importance having diversity — not just in gender but in various backgrounds on a team. Women are not the only group underrepresented in the venture space: only 2 percent of VC investors are hispanic and just 1 percent are black, according to the Gompers and Kovvali report.
Venture capital is a really network-driven industry and so it really matters who you spend time with when you are hosting events, who you put on the stage, who you hire to be your partners, Megan Zweig, head of research at Rock Health, said. If your venture team and network reflect a certain demographic and maybe it’s overwhelmingly male, that is going to mean that the entrepreneurs that come to you are going to be predominately male, because they are going to see themselves in you and you are going to look at them and equate them to past founders and successes you had.
Zweig said it is important for VCs to include different voices in events and talking to people with different backgrounds.