Extra Crunch: HealthTech VCs, fundraising in August, reducing churn, North, and co-ops as startups

Wednesday, August 7, 2019 By Danny Crichton Let us know how you like this newsletter? What tech gets right about healthcare zakOO via Getty Images This week, our long-time healthtech correspondent Sarah Buhr talked to leading health VCs Phin Barnes of First Round Capital, Matt Ocko of DCVC, and Nick Naclerio of Illumina Ventures about what they are seeing in the healthtech ecosystem, how they are thinking about investments in the space, as well as the reasons behind why they led their recent deals in health startups.   [DCVC's] thesis is simple: if the cost for superior, life-saving care is half to 10x less, and results are 10-100 times better, then adoption happens quickly, and hospitals and insurance companies are hard-pressed to say no to saving money while lives are saved. Some of the healthcare companies we have invested in have achieved dramatic results to help deliver "disruption from within".   One example is Karius, which uses genomics and AI to advance infectious disease diagnostics. The company can recognize almost every pathogen mankind has ever encountered at the genomic level.   Using machine learning algorithms that allow for rapid analysis of complex genomic data, they are pioneering new testing methodologies to accurately detect and characterize infectious diseases. Instead of relying on a century-old method developed by Louis Pasteur that can take weeks for a result, the Karius gene-based blood test that can return results in a day.   This can make the difference between life and death. And Karius' technology is backed by multiple large-scale studies, peer-reviewed publications, and a delivery and reimbursement model that satisfies both doctors and administrators in the existing framework of the healthcare system.   How to fundraise in August chaoss via Getty Images Fundraising is always brutal (even if journalists never cover the gritty and gory details). And August would seemingly be the most brutal month to fundraise, what with everyone on vacation. The reality though is that while you can't fundraise in August the way you might in September or October, there are a lot of strategies you can use to take advantage of the uniquely relaxed tenor that August offers. I provide some context for how to fundraise in August, as well as some tactics to implement to maximize your fundraising efficiency in the fall.   It's important to do the wink-wink messaging of telling people that you are not fundraising. Because you are not "fundraising" in the sense of trying to get a deal done, but rather trying to meet folks and get feedback (of course, you are fundraising if you are reaching out to VCs, and that's where the wink is important). So don't be afraid to explain in a short sentence in email intros, "We are preparing for a fundraise this fall, but wanted to reach out early to some investors who we feel would fit the company well and get feedback" or something along those lines.   …   Next, and this comes from a founder friend who has successfully fundraised a number of times, host casual encounters for founders, friends, and investors. Don't let anything get too formal. While VCs may not take vacation, they certainly want to relax this time of year, and that's an opportunity to find enjoyable joint activities. Do a wine-tasting tour. Go fly fishing. Since you ultimately want to build enduring relationships with your next investors, meeting them outside of a business context can give you a wealth of information on the personality behind that next term sheet.   6 steps to reduce churn for high volume subscription companies PeterSnow via Getty Images Churn is death for all startups. No company can grow to great heights when its customers are signing up and then just walking away. Reducing and managing churn is a critical skillset for all companies, but particularly consumer-oriented subscription companies.   Guy Marion, who is CEO and co-founder of Brightback, provides Extra Crunch members with detailed steps to identify, fight, and reduce churn.   When defining categories, consider who is influenced by the feedback. Ask yourself: What actions will you be taking as a result of this information? Typically, this data is most valuable for product improvement, customer and market intelligence, service feedback, monitoring sentiment or identifying new avenues for growth.   Reason based classification has three major benefits for companies:   1) Everyone in the company speaks the same language about churn, and you can revisit the reasons people cancel again and again for new insights.   2) It's easier to identify what parts of the business are in need of investment in order to retain more successfully.   3) You can assess the efforts and investments made over time are having an impact on churn, especially when the data is reviewed in cohorts.   Consumer hardware startup North's big pivot bet on wearable computing and seismic platform shifts Eóin Noonan/Sportsfile via Getty Images Thalmic Labs was a reasonably well-known startup that produced the Myo, an armband that allowed you to control a computer using gestures. The company has since completely transformed itself, selling off its Myo product and rebranding as North.   Darrell Etherington takes a look behind-the-scenes at the massive pivot, analyzing North's whole new product line centered on its Focals smart glasses, and why the company made the transition in the first place.   Basically, [co-founder and CEO Stephen Lake] positions the problem as a kind of classic 'cart before the horse' dilemma: How could its interface device for a future class of devices achieve meaningful purchase if that class of devices was off to a slower start than anticipated? A less ambitious startup might've refocused on innovating accessories for an established device market, but Lake says his company instead took aim at pioneering an entirely new class of consumer device.   "We realized we had a choice, right? It was like we believe the category is going to exist," he said. "We started off, we thought of Myo as the mouse for heads-up displays. But the actual displays weren't there. And so the decision was, do we wait until some big tech company, [maybe develops] version three, figures it out eventually over time, and we build these peripheral devices for it, or do we actually go and try and address the key challenges in building the glasses themselves. So of course, we chose the latter."   Not your typical startup: How being a cooperative drives our business and product development Feodora Chiosea via Getty Images Finally, for all the talk of profits in Silicon Valley, the classic C-corp isn't the only model for building a company. A different option is the cooperative, in which employees themselves own the company, dissolving the classic worker/manager dichotomy seen in most American companies.   Pola Henderson, of French remote-first worker collective Digicoop, talks about the logistics of being a cooperative and the advantages and disadvantages the model entails.   Before talking about our financing rounds, it is important to understand that given the nature of cooperatives in France (i.e. they are to be long-lasting companies providing long-term employment for workers), investments don't work the traditional way.   In a SCOP the share value is constant, but shares can be issued at will. The capital of cooperatives is therefore variable (because the amount of shares can change), but not speculative. You cannot value the company higher than the sum of its shares and thus raise funds based on a new capitalization. This means that selling the company makes no sense, as you would only recover the amount you initially put in. As a result, all exit strategies usually used by startups are not applicable.   It's worth noting though that this "constraint" is on purpose, as the goal is to be successful as a company and not as founders.   (Of course, there is an alternative way to finance cooperatives — on top of traditional bank loans — and we will come back to it later.)   Thanks To every member of Extra Crunch: thank you. You allow us to get off the ad-laden media churn conveyor belt and spend quality time on amazing ideas, people, and companies. If I can ever be of assistance, hit reply, or send an email to danny@techcrunch.com.   Let us know how you like this newsletter? Read more at TechCrunch.com ➝ View this email in your browser TechCrunch | ATOS | Customer Support | Unsubscribe Was this email forwarded to you? Sign up now. 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