The coming behavioral health tech boom (and how not to write a pitch deck for it)
Dr. Robert Mittendorff of Norwest Venture Partners shares his thoughts on how coronavirus is reshaping health tech and investing.
"I still see some pitch decks that don't even mention COVID-19," says Dr. Robert Mittendorff. "I think that speaks a bit to the acumen of the entrepreneur."
As a qualified physician, Mittendorff knows first hand what's happening with coronavirus: Alongside his job as partner at Norwest Venture Partners, he also spends a few shifts each month working in the emergency room at a Bay Area hospital.
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And during a recent interview with Protocol, it was clear that his perspective has left him frustrated with some parts of the tech community, from tech leaders "touting opinions that are not based on facts" to founders who think of the pandemic as "a footnote" in their pitches. And as for Elon Musk? "I don't believe he's fully in the flow of information needed to understand that exceptions for some will create pretty substantial health issues," Mittendorff said.
Protocol spoke with Mittendorff to get his views on tech's COVID-19 response and how the crisis is affecting health tech.
This interview has been edited and condensed for clarity.
As a doctor seeing the effect of COVID-19 in hospitals, and as a tech investor, what do you think of tech leaders such as Elon Musk who are pushing very hard for a reopening of the economy?
I'm conflicted on Elon Musk. I have the highest respect for him as an entrepreneur — I think he is one of the most amazing and interesting entrepreneurs on the planet and I think of his generation. At the same time, I think he probably … I don't believe he's fully in the flow of information needed to understand that exceptions for some will create pretty substantial health issues.
His citation of the Bakersfield doctors, who should be roundly dismissed for their inability to understand the evidence out there around fatality rates and, and such … That's just horse hockey.
That being said, the debate that he is creating — around economic pain versus public health pain — is an important one. But I think both sides need to be informed by real data — economic on one side, public health on the other — so that we can have a real discussion. And I think some of the debate right now, on either side, is not really informed by the best data.
Does the trend of VC and tech people being "thought leaders" on topics like this worry you?
As an investor, yes. We sometimes see from all kinds of leaders, not just tech leaders … people touting opinions that are not based on facts, or touting opinions that are based on a loose association of facts. And that has done a bit of a disservice to the expertise needed to really discuss these complex topics. It is often infrequent that we can discuss complicated topics in a pithy way.
Sometimes we do see this in health care investing. We have what I call the "tech interloper" — and I'm not calling Elon Musk that — but there are tech interlopers who come into health care and say, "Oh, I can transform the system." And I love the optimism and the entrepreneurial spirit, but many times it's a form of naivete that leads to failure on their part, and of course a bad investment. So we tend to focus on entrepreneurs in health care that have knowledge of the health care space, have thought through how to integrate into the space as it is today and transform it over time, rather than "disrupt it," if you will.
In what ways is health care tech getting a boost from the crisis?
The telemedicine space is experiencing a watershed moment. We have seen development of telemedicine solutions and adoption of those solutions in two months that we would expect to occur over five, six, seven or more years — out of necessity. So although we can say telehealth is going to take off, there's a lot of nuance there. I think we're going to see telehealth in the direct-to-consumer space continue to take off. And we're going to see telehealth solutions take off in the employer space. I think we're going to see telepharmacy solutions take off, second opinion solutions take off, clinical trial enrollments and prescriptions, in terms of a telemedical approach, take off.
What can be virtualized during the pandemic will be virtualized, and we're finding relatively quickly that a lot of what we do in medicine — I wouldn't say the majority of what we do, but a lot of what we do — can be virtualized. I don't believe we'll fully go back to our pre-COVID-19 office appointment mentality in health care.
Are there other impacts?
If you look historically … we clearly see during economic downturns this long tail of mental, behavioral and often medical challenges. You see increases, which is all well documented, in substance abuse … in domestic violence, in depression and anxiety.
The COVID-19 situation is far different. We're talking about really isolating a population of people. We're talking about a significant percentage of those people being unemployed. We're talking about co-locating family members again, not providing them outlets to help manage a lot of the stress of this ordeal. I feel like we will see substantially more challenges in the behavioral health space coming out of this than we've seen in the Great Recession, in which we did see profound changes in behavioral health and mental illness.
So it's an incredibly important time for telemedicine to prove its mettle here, in improving access to therapy to individuals that cannot meet a therapist right now.
[My portfolio company] Talkspace is one of those companies that's offering text-based, audio- and video-based services from therapists, to psychiatrists that can prescribe medicines to individuals, through their employers or direct-to-consumer. That's really helping in this very hard time. And there are a number of benefits in telemedicine, since everything is digitized, to some extent. We survey patients over their therapy, and we tend to see improvements in their depression scores and their anxiety scores as they undergo weeks of online therapy. And they're more compliant: They remain in therapy longer online than we see in the in-person space. People typically drop off after two or three visits to a therapist, whereas online they stay for months.
Is the FCC's $200 million telehealth package affecting anything?
This is just part of the broader telehealth trend. This is the FCC helping to provide the equipment and other aspects of the delivery system necessary to provide telehealth to those that are less resourced in society. So I think these are all great moves in terms of really nudging — if not nudging, probably more transforming — more of the U.S. health delivery system into a telemedicine format.
How are valuations holding up in your world?
As is always the case in venture, it's sector specific and bespoke, in my opinion, so it depends on the particular company, and their offering, and the team and such. But we've certainly seen a decline month-over-month in venture investing. And what that should do is bring valuations down.
That being said … I think there's a tension around, "well the public markets performed well in April, yet, the venture capital looking for new deals has decelerated in terms of new investments." So pricing expectations on the part of the entrepreneur have not declined dramatically yet, but I anticipate they will in the coming weeks and months. There really is no other way to see this story play out.
How is health care holding up relative to other sectors?
In the case of telemedical solutions, I'm more bullish. I have a number of health care investments, some which sell to employers, like Talkspace and Omada Health — telehealth solutions that are doing arguably as well or better than we forecasted in the COVID-19 plans.
I have several companies that sell what I consider to be essential technologies to health systems: TigerConnect, which is a unified clinical communications platform; Qventus, which actually has a platform that helps hospitals manage surge capacity and patient flow; and a third company VisitPay, which helps hospitals improve the patient financial experience by intelligently offering patients payment plans. All of those companies are seeing increased demand right now.
On the other side, one of my companies, Neocis, which is an amazing oral surgical robot, they are seeing a bit of a pause, because dentists and oral surgeons are not in their practices right now. So I would say in-person services are not a great place to be.
But I think health care in general will be seen, as it always is, as a bit of a defensive sector, and really it's brought to the fore right now because of its immediate relevance to COVID-19.
What's the one pitch deck that you wish would appear in your inbox?
COVID-19 is not a footnote on an otherwise developed pitch deck. Entrepreneurs pitching VCs should actually think about the dual pathway pitch, or the two-headed monster, if you will. The goal is to articulate a business plan and model that works in what we hope will be the post-COVID world, but also one that is sustainable in the COVID-19 world of the next year to three years. The business has to be functional and the growth story must be present in both of those scenarios. Right now, I still see some pitch decks that don't even mention COVID-19, and those that do think of it as like a footnote, and I think that speaks a bit to the acumen of the entrepreneur.
Correction: An earlier version of the article misspelled the name of Norwest Venture Partners and Omada Health. The article was updated 5/20/20.