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Is A Rise in Valuations Possible During Pandemic?

Is A Rise in Valuations Possible During Pandemic?

Find Out What Investors Have to Say

With new and cumulative coronavirus cases rising across the globe with the end at far sight, markets were thrown into a frenzy amid the COVID-19 pandemic and the economy faces an impending recession. The economic impact of the COVID-19 crisis has been far from balanced, hitting many industries and businesses at various magnitudes. With the volatility of markets, everyone is unsure of what will happen and how the market will pan out in the short-term. With ever-growing uncertainty, what are the next steps for long-term investors? How will they approach investing during and post Covid-19? With Galen Growth wanting to bring the ecosystem together to enable it to thrive during uncertain times, this panel hosted by Gavin Teo, Co-Founder from Straits VC and Board Director ofGalen Growth, highlights various investor perspectives and predictions in the short and long run, featuring investment leaders John O’Sullivan, General Partner of Act Venture Capital; Lawrence Low, Senior Vice President Investments of EDBI; Seemant Jauhari, Partner of HealthXCapital and Dave Ng, Head of Southeast Asia from Eight Roads Ventures.

On the topic of whether the market is net positive or net negative for healthcare investing, John O’Sullivan, General Partner of Act Venture Capital shared that he believes that this episode could play out for many days, months or even years and is truly hard to figure how things will turn out. He added that, that despite witnessing the healthcare environment for existing portfolio companies to become one that is generally net positive, they were unable to connect this positive outcome to their Profit and Loss (P&L). CEOs from successful companies feel like their industry has moved forward three years in three weeks; however, without reflecting their P&L, many struggle with planning to budget. Admitting that doing new deals poses new challenges, newcomers looking into digital health causes quite a difficult dilemma for thematic investors, given that newcomers are unable to plan out what will happen in the long run. However, if you’re a stage-based investor where you have some discipline over capital deployment, one has to see it in the numbers. With that, he concluded that the macro is certainly net-positive, but only for specific sectors of healthcare.

Within the broad diversity of the healthcare sector to meet the needs of individuals, this pandemic has brought about a change in consumer needs, causing an unprecedented rise in various healthcare categories. As a big believer in digital health and biotech, Lawrence Low, Senior Vice President Investments of EDBI delved deeper into this topic by sharing his prediction that this pandemic will help to accelerate some critical circular trends that we are seeing in both segments in the past 1 to 2 years. He shared three essential sectors that will likely gain momentum, the first being digitalisation and AI adoption. With AI-enabled medical imaging, this will tremendously relieve the surge in the workload of medical clinicians during this COVID-19 situation, as a higher accurate diagnosis is made. Secondly, innovation in the delivery of healthcare services (e.g. telemedicine) will accelerate. Last but not least, he believes that the shift to precision medicine will continue. Modality treatments, self-therapy, RNA based technology, genomic engineering, Next-Gen Sequencing as well as platforms that facilitate synthetic biology will be placed well going forward post-COVID.

Given the uncertainty of how the situation will evolve, has this pandemic changed investors perspective on early and later-stage healthcare? Seemant Jauhari, Partner of HealthXCapital, gave insights on how it all draws back to the fundamentals of investing and whether it is a good business with the right strategy and values. Broadly speaking, he believes that large investors have been increasingly cautious, allowing them to pause or slow down for the time being. This gives investors the breathing room to look at deals presented in front of them that could potentially be in the striking range. With the slowing pace, investors may steer towards picking up deals of later than earlier stages. Another phenomenon possibly arising is the change in the definition of ‘Early-Stage’, for what was early before, during and post-COVID may become even earlier, causing some to be bumped in and out of the sweet-spot with low valuations. These views were supported by Dave Ng, Head of Southeast Asia from Eight Roads Ventures, who added that in the short-term amidst the pandemic, there will be rethinking of interesting opportunities, how predominately flexible business models are. In this new normal, investors have a change in mindset in terms of capital allocation and how they think about their investment strategy.

The panellists generally agreed that around 60-70% of their time would be spent on existing portfolio companies, 30% for new investment. However, one of the most significant challenges posed for investors is their inability to travel and meet teams. It is highly unlikely for a lump sum to be given unless investors are genuinely committed to the teams, no matter how developed the business is. This stresses the importance of understanding how a business’ P&L works, allowing investors to see how their finances are allocated. With the shift in focus to protect reserves for portfolio companies, new companies with outstanding merits of their kind have to understand thatevery 2-3 weeks, assumptions on the reserves for the existing portfolio, are being wholly reassessed which will affect the volume of deals made.

On a positive note, China’s domestic volumes are back above 40%, which indicates that we may have a certain degree of “normal” life again. However, normalcy will indeed return after the implementation of a suitable vaccine, possibly next year. Back in the US, there has yet to be a noticeable fall in valuation, which is largely attributed to the fact that they are still in the midst of first wave. Prices in the stock market are rising as if its past COVID poses many concerns as the US has yet to get ahead of their first wave. High-quality companies are seen coming back to the market to raise extended rounds as progress has been hit by COVID-19. Fuelled by uncertainty and the inability to predict how long this will last, the need for more cash to act as a buffer becomes more prominent.

India, a reasonably innovative country, is beginning to adopt jugaad in order to maximise resources. With only 44,000 ventilators and a large population of 1.2 billion, the disparity is alarming, causing many to jump on the bandwagon to create low-cost ventilators. With this economic equivalent that can serve a large population at a low-cost, there is excellent global manufacturing potential. This pandemic has brought about new government guidelines for telemedicine, allowing one to do e-prescription. In addition,the Medical Council of India has proposed an exam to be cleared online by doctors to undertake telemedicine, clearly indicating the importance of this growing healthcare sector. Despite the promising outlook of the HealthTech ecosystem with the increase in innovation and players, investors will remain conservative and cautious.

With his extensive knowledge and experience Lawrence Low, Senior Vice President Investments of EDBI advised, “As partners, we are helping entrepreneurs to adapt to the new environment that we see and use our experiences to help them rethink their business model and product proposition. Firstly, be transparent about your communication with your employees and shareholders. This is the time to build mutual trust. Don’t be afraid of overcommunicating and sharing bad news. As the captain of the ship, engage to your shareholders proactively. This is to really assure them and align them with your mission and shared values. Show empathy in your interactions. You are dealing with human emotions. There are startups with strong shared internal values and a clear sense of purpose, allowing them to be well equipped to face any storm coming their way. Secondly, be agile and nimble in your business and operation. This is to relook at your business model and your operating cost. Make sure you have 12 months of cash runway so that you have a buffer to tide through this storm. Seize new opportunities arising from this COVID situation”.

As the virus rages on, when will we ever get back to normal? All four panellists predicted that normalcy would return around the first quarter of 2021 with the expected development and mass production of vaccines against COVID-19, coupled with the gradual lifting of lockdowns. The panel concluded by mentioning the want to invest cautiously in high quality and resilient businesses that will remain strong during and post-pandemic. John O’Sullivan, General Partner of Act Venture Capital, commented that he looks for a fundamentally sound business that is both past and future-oriented. Lawrence Low, Senior Vice President Investments of EDBI, highlighted that Medical Devices and BioTech companies would suffer from slow growth. BioTech companies will, unfortunately, see a halt in clinical trials if not pertaining to the virus. Seemant Jauhari, Partner of HealthXCapital, emphasised that apart from Telemedicine or Health in general, the rest of the sectors will be significantly affected. He believes that the new normal will be here to stay and that despite the inevitable drop in the usage of digital health post-pandemic, many will have been exposed to digital health, one way or another, creating a societal change in mindset to one that is more open.

Keen to find out how promising HealthTech startups and leading investors are coping in these uncertain times and get your actionable vital takeaways? Join Galen Growth in the Together Apart Series: Building an Effective HealthTech COVID-19 Survival Strategy series.

With key leaders, creatively destructing the healthcare ecosystem across Asia and Europe join Galen Growth’s weekly series that will run to July. To discover more about the thriving HealthTech ecosystem, please head over to

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