In 2016 AARP and Oxford Economics published The Longevity Economy report. It showcases how longer lifespans and employment are driving dollars into new spending patterns. Investment in longevity market startups has been slower than expected. But Scott Smith, founder and CEO of investment bank, Viant Capital, told Bay Area News, “The VC community has finally woken up to the fact that, next to millennials, this is the largest market in the world and it’s grossly underserved.”
One of the most funded areas in the longevity economy has been home care. Many venture capital firms (VCs) have placed their bets on home care. It is a huge growth market with relatively little tech innovation—in other words a market ripe for disruption. (According to industry experts, other top growth areas include: social isolation, aging in place, cognitive health/dementia, care management of chronic conditions and end-of-life/costs of care.)
In 2015, the longevity economy and investor worlds got a jolt. Silicon Valley’s investment gurus Andreesen Horowitz led a round of $20 million in Honor, a digital platform to connect home care workers to seniors for aging in place. An investment trend followed in 2016. An aggregate $200 million in funding focused on companies creating online tools and services for coordinating home care.
But while home care investments saw an uptick, VCs have shown a recent risk-aversion to the longevity market startups. This makes it more challenging for today’s entrepreneurs. It also has created longer funding timelines. Today’s entrepreneurs must offer proof of concept and validation of their business model before they can entertain Series A-D funding.
Jon Warner, CEO of Silver Moonshots, an incubator for startups in the age 50+ space, believes there are possible future unicorns—privately held companies valued at more than $1 billion – in the longevity economy. But traditional VCs are not yet investing seriously in this sector.
“It is not a lack of ideas but a lack of funding which has kept many aging startups in slow growth mode,” says Warner.
“A few Silicon Valley VCs and funds are investing small amounts in these aging-focused startups, but typically not in the larger rounds of $5 million and more. The VC approach to promising startups in this space is either not to recognize the potential or even ‘go away until you’re all grown up.’ But it’s a vicious cycle because all worthy startups need funding to strengthen and grow.”
Jody Holtzman of Longevity Venture Advisors conceived AARP’s the Longevity Economy Report also says VCs are becoming more risk averse. “I see two things: First, VCs all seem to be racing to be second. They are increasingly risk-averse, following the latest fad (big data, AI, IoT, machine learning, blockchain, etc.), with fewer leading early stage funding rounds,” explains Holtzman.
“Secondly, I see many entrepreneurs make the same mistakes over and over. They have to answer who buys the product or service and who pays for it? Without those answers they won’t succeed with investors, especially the VCs. But, in addition, to succeed in the market they also have to answer the question, ‘Why should anyone buy?’ That demand-side question is all too often forgotten, and we see the results.”
“The aging space today needs more angel investors if traditional VCs are to jump in,” advises Katy Fike, a founding partner of Generator Ventures and co-founder of Aging2.0, a global innovation network for longevity economy companies.
Fike explains that angel investors can help entrepreneurs by providing much-needed seed funding. Those funds can support pilot studies and research. They also give entrepreneurs a longer runway to find distribution partners while VCs bide their time on potential winners.
But Fike also warns entrepreneurs to not become a “hammer looking for a nail.”
Startups have to understand the longevity market issues if they want to secure funding. They must offer solutions to real problems.
In 2014, two companies came together to form a powerful fund in the longevity space. Ziegler and Linkage created the Longevity Fund with $26 million. Investments have included Breezie, a platform for senior care providers, TrueLink Financial, a financial services provider for seniors and CareLinx, the nation’s largest online caregiver marketplace.
“Most entrepreneurs need to articulate their return-on-investment,” advises John Hopper, chief investment officer of Ziegler Link-age Funds. “Many of the startups we encounter have a personal experience, such as caring for a parent, that becomes the foundation for their business. But they have to show how they fit into the aging and health care ecosystem and how the business will generate revenue.”
Beyond the dedicated longevity market investors, some digital health funders like Rock Health or Y Combinator, have made smaller investments in longevity market ideas. For instance, in January 2018 Y Combinator announced $1 million in funding for longevity and lifelong healthspan ideas. Similarly, Launchpad Digital Health recently invested in Mentia’s Deva World, a therapeutic digital village for people with dementia.
Mary Furlong, a 30-year veteran in senior market entrepreneurship, sees corporate venture capital (CVCs) a growing alternative for some entrepreneurs.
“Corporate VCs who invest early with top-tier startups can not only gain financially, but can also leverage their market knowledge to guide entrepreneurs to greater value and impact,” says Furlong.
Google Ventures, Intel Capital, Comcast Ventures and Walgreens are just some of the CVCs paying attention to longevity economy investments. One of the bigger corporate VCs is Amazon with its $100 million Alexa Fund. It announced an alliance with JP Morgan Chase and Berkshire Hathaway to develop an independent health care company for its U.S. employees. And Amazon is setting its sights on funding technology startups that include addressing the needs of an aging population.
Alex Gorsky, CEO of Johnson and Johnson, which runs J&J Labs investing in health care startups, summed up Amazon’s entry into health care and longevity economy opportunities in a recent CB Insights report: “We should all be acting like Amazon is getting into our business, because frankly we have to create a crisis to think about how to more effective and efficient.”
Some companies looking to be acquired and achieve growth stage investment have made successful exits. Last year, GTCR, a private equity firm, purchased Great Call, the largest provider of connected health for active aging. And one of Ziegler Link-age’s bets paid off last year. Generali Global Assistance, the U.S. division of international Europ Assistance Group, acquired CareLinx.
When it comes to the investment horizon, Hopper says Ziegler Link-age sees telehealth as a big growth area. He also expects expansion with value-based care.
Holtzman sees the role of “who pays” expanding. Recent changes in Medicare Advantage benefits cover non-medical offerings that improve health outcomes and senior independence. He feels startups that can showcase improved outcomes and lower costs are solid bets for investors.
Fike believes health care’s emphasis on post-acute senior care is increasing the importance of aging-in-place and assisted living solutions. She sees continued growth for entrepreneurs who can provide innovative solutions in these areas.
Michael Carroll, chief marketing officer at TripleTree, which invests in growth-stage companies through its TT Capital Partners, says “Understanding and aligning your funding sources and investing partners with the stage of your business will improve the chance of success.”