Two years ago AARP and Oxford Economics published The Longevity Economy report showcasing how longer lifespans and prolonged employment are driving dollars into a new age of shifting spending patterns. While investment in longevity market startups has been slower than expected, Scott Smith, founder and CEO of San Francisco-based 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 because 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 market and investor worlds got a jolt when 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. This sparked an investment trend in 2016, when an aggregate $200 million in funding focused on a myriad of 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—making it more challenging for today’s entrepreneurs. This has created longer funding timeframes in which today’s entrepreneurs are required to offer proof of concept and validation of their business model before they can entertain Series A-D funding from VCs.
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 many 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, who prior to becoming senior managing partner of Longevity Venture Advisors conceived and spearheaded the Longevity Economy Report while SVP, Market Innovation at AARP, says VCs are in the riskiest asset class but 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 and startup accelerator program focused on longevity market companies.
Fike explains that angel investors can help entrepreneurs who have promising solutions by providing much needed seed funding that in turn can support pilot studies and research. These funds also give entrepreneurs a longer runway to find distribution partners all while VCs bide their time on potential winners.
But Fike also warns entrepreneurs to not become a “hammer looking for a nail.” She explains startup companies have to address solutions to real problems and they have to understand the longevity market issues if they want to secure funding.
In 2014, two companies came together to form a powerful fund in the longevity space: Ziegler and Linkage, who created its Longevity Fund with $26 million. Investments have included Breezie, an open platform that enables senior care providers to deliver care and services through a simple and personalized tablet interface, TrueLink Financial, a San Francisco-based financial services provider for seniors and CareLinx, the nation’s largest online caregiver marketplace for personal home care services.
“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 and its Deva World, a therapeutic digital village helpful to those with dementia and their family caregivers.
Mary Furlong, a successful 30-year veteran in senior market entrepreneurship who for the last 15 years has held the Boomer Summit events convening thought leaders in the longevity economy, sees corporate venture capital (CVCs) a growing and viable 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, who also serves as an advisor and board member for numerous longevity market start-up companies.
Google Ventures, Intel Capital, Comcast Ventures and Walgreens, which has its own Well Ventures in addition to partnering with Chicago-based incubator Matter, are just some of the CVCs paying attention to senior tech and longevity market investments.
One of the bigger corporate VCs is Amazon with its $100 million Alexa Fund. In addition to its recent announcement to disrupt health care by forming a trinity alliance with JP Morgan Chase and Berkshire Hathaway to develop an independent health care company for its U.S. employees, Amazon is setting its sights on funding technology startups that include addressing the needs of an aging population.
Whether threat or opportunity, Alex Gorsky, CEO of Johnson and Johnson, which runs the much-lauded 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.”
There have been some successful exits for companies looking to be acquired and achieve growth stage investment. Last year, GTCR, a private equity firm, purchased Great Call, the largest provider of connected health and personal emergency response services (PERS) for active aging. And one of Ziegler Link-age’s bets paid off last year when 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 along with value-based care. Holtzman sees the role of “who pays” expanding, especially with recent changes in Medicare Advantage benefits for non-medical offerings that continue to improve health outcomes and senior independence. He feels startups that can showcase improved outcomes and lower costs are solid bets for investors. Fike believes the health care world’s emphasis on post-acute senior care is changing the importance of aging in place and assisted living solutions. These are two areas where she sees continued growth for entrepreneurs who can provide innovative solutions.
Michael Carroll, chief marketing officer at TripleTree, a healthcare merchant bank that invests in growth-stage companies through its principal investing arm 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.”