The venture firm is targeting consumer health startups that can prevent illness before it happens and has secured health product maker Schwabe as its financier.
The €100m ($105m), Schwabe-backed NaturalX Health Ventures launched out of stealth this week and plans to target consumer health startups, an area managing director Marvin Amberg says needs far more investment.
Consumers are more focused on staying healthy and the focus on preventative healthcare as a result of soaring costs to treat chronic diseases is creating an opportunity for consumer-focused health startups that German pharmaceutical and health product group Schwabe wants to target.
“They [Schwabe] think that, in the long term, healthcare is moving closer to the consumer, and they want to understand this more. They want to get closer to the ecosystems and invest, and so we came together. It’s a very strong relationship,” says Amberg.
NaturalX plans to focus mostly on European startups, though it is open to opportunistic bets in the US. Its sweet spot is around series A but it can invest a little earlier or later. It has set a range of between €3m and €5m per deal, with each portfolio company able to potentially get up to €10m.
Schwabe, one of the largest plant-based medicine producers in the world and owner of US supplements brand Nature’s Way, can offer help to startups in distribution, the supply chain and regulatory advice.
Although the corporate has provided all the capital for NaturalX’s debut fund and its CEO, Olaf Schwabe, chairs the VC firm’s investment committee, NaturalX operates largely independently and Schwabe is backing it primarily as a financial investor. The corporate has no plans to form commercial tie-ups with NaturalX portfolio companies, but it is using that exposure to gain insights into the consumer health sector.
“They’re involved with the investments process but there’s no buy-in needed from business units and there is no need for partnerships,” Amberg says.
NaturalX may just be emerging from stealth but it has already backed several startups, including AI-equipped mental wellness platform Kyan Health and online therapist marketplace Meela, as well as contributing to specialist VC funds. Amberg says his ideal portfolio company would be a platform where consumers can access biomarker testing, receive analysis and then lifestyle recommendations – similar to Function Health, a US-based company raising money at a $2.5bn valuation.
Share prices for consumer health companies soar
This is exactly the right time to launch a consumer health fund, Amberg adds, even more so than a year ago. Eight-year-old consumer health product supplier Hims & Hers’ share price has tripled in the past three months, artificial intelligence is reducing costs and big-name social media influencers are getting people to think and talk about health and wellness in depth. All of this feeds into a ready-made customer base for its startups.
“People are shifting priorities – they’re smoking less and drinking less,” he adds. “Gym memberships in Germany increased by 3 million over the last 10 years, which is quite a significant number. We are seeing a shift toward proactive care and consumer health. I didn’t coin this phrase – but we see the consumer becoming the CEO of their own health. I like that.”
As healthcare costs soar, the focus on prevention rather than treatment will create even more opportunity for consumer healthcare technologies.
“When we look at [Europe’s] healthcare systems, we see that they’re unsustainable, if not broken,” Amberg says. The proportion of GDP spent on healthcare has been steadily rising in both Europe and the US since 1990 – his own insurance premiums have just risen by 30% – and the system overall has to tackle those soaring costs. That means putting more money into prevention rather than just treatment.
“The healthcare systems in Europe only spend about 3% on prevention, which doesn’t make sense.”
“When you look at where all this money goes, you quickly see it’s going to chronic or non-communicable diseases,” he says. “They make up about 80% of the total spend, and those are largely preventable.
“However, the healthcare systems in Europe only spend about 3% on prevention, which doesn’t make sense when you think about the big cost issues. Most of it is coming from chronic diseases and those are actually large preventable.”
Cardiovascular diseases, cancer, type 2 diabetes and Alzheimer’s are just some of the areas where illness and death can be substantially reduced through a combination of lifestyle changes and early diagnostics, Amberg points out.
But healthcare providers are mostly built for acute care not for chronic diseases. Insurers generally aren’t willing to spend now to save tomorrow and pharmaceutical companies don’t have an incentive to move away from drugs that treat rather than prevent the disease. People, on the other hand, do have an incentive to do that, which is part of the reason it makes sense to target the consumer end.
One of NaturalX’s first crop of portfolio companies, Flow Neuroscience, is an example of how that can work. Flow is the creator of a wearable device that stimulates the prefrontal cortex to help restore healthy brain activity in patients suffering from depression. The company began by selling the system directly to consumers, and it’s now being offered to patients by the UK’s National Health Service.
“That’s the path we’re following when we say consumer health,” Amberg says. “I believe the market is wide open and there is a lot of opportunity here in Europe.”
