Investing for impact in braintech, interview w. Anne-Sophie Saint-Martin (Newfund) 🧠
by August Soliv, Author of Impact Supporters. | Originally published on Impact Supporters.
by August Soliv, Author of Impact Supporters | Originally published on Impact Supporters.
Key insights:
Interview with Anne-Sophie Saint-Martin, Partner at Newfund
Braintech is a key impact area as 1. the world population grows older, 2. there is a surge in chronic diseases, 3. mental and neurological diseases are the largest group of diseases globally
Compared to cancer or cardiovascular diseases, we are far behind in diagnosing and treating neurological diseases
Europe has approximately the same quantity and quality of braintech start-ups as the USA. However, monetization happens in the USA - they can charge 10x, 20x, 50x the price in the USA
FDA approval is one of the most significant barriers for braintech, so investors are, in general, struggling to price the risk of investing before the approval - Heka counters it with its partnership with the FondaMental Foundation
The largest trend in braintech is techbio, enabling new discoveries
Meet Anne-Sophie Saint-Martin 👋
Anne-Sophie is an engineer by background and started her career in research. She then became an investor 8 years ago - and has stayed ever since at Newfund. Today, Anne-Sophie is a Partner at Newfund, focusing exclusively on health deals across Newfund’s generalist fund and their new braintech fund.
Meet Newfund and Heka 💼
Launched in 2008, Newfund has over €300m in AUM with the specificity that it is not an institutional fund and that it has the largest base of individual LPs in France among VC funds (more than 200 LPs) Newfund is an early-stage investor supporting entrepreneurs expanding to the USA, believing that category leaders must be in the US market 🌟 Newfund has a small team in the USA to assist European companies in this transition.
Last June, Newfund launched Heka, their braintech fund, after years of developing expertise in healthtech. Heka is raising €70m to invest in 20-25 early-stage start-ups (Seed-Series A) about 12-18 months from FDA approval and pre-revenue 📈
Braintech is not a term that is used much in Europe - at least not as much as in the USA. So Anne-Sophie often describes Heka more as a healthtech fund dedicated to the brain. Heka invests in:
AI-enabled diagnostics
Digital therapeutics
Predictive analytics
Personalized care and prevention
Acceleration of clinical trials
These areas are healthtech topics, but Heka specializes in brain solutions within these verticals.
Why braintech is an impact topic 🌱
Anne-Sophie cites reasons why braintech deals should be regarded as impact investments:
The world population is aging, which has a large cost to the public health sector
There is an increase in chronic diseases, which also has a large cost to the public health sector
1.5 billion people suffer from mental and neurological diseases and these are today the largest source of diseases in the world
There has been a surge in diagnostic tools and treatments in recent years, moving closer to treating Alzheimer's and creating standardized care pathways. Compared to cancer or cardiovascular diseases, we are behind in diagnosing and treating neurological diseases 🧠
Heka focuses on impact areas in braintech, avoiding non-impact topics like cognitive enhancement or Brain-Computer Interfaces (BCI) which focus on augmenting humans rather than improving lives.
Brain capital 🧠
Harris Eyre, a Heka board member, coined the term "Brain Capital" to be used in addition to and instead of GDP to measure the brain health and competencies of a population. Preserving brain health enhances creativity and productivity, yielding social and economic benefits 💡
Brain Capital is the economic benefit that accrues from keeping our brains powered at the highest level - Sandra Bond Chapman
Brain capital brings a broader view of the importance of our brains than just health. An additional part of the impact of diseases that is often disregarded in healthtech is the impact on the friends and family of the patient. In companies today, one-third of all employees are caregivers to someone close to them. Braintech has a much broader impact than you would expect - it also impacts productivity at work, education, social life, and much more.
Deeptech vs software 💻
Anne-Sophie notes that braintech solutions span deeptech and software. Heka invests in both, provided they have a positive impact. Braintech lags behind other healthtech areas, meaning that software solutions for simple activities such as digitizing patient pathways add high value 📊
Deeptech investments must fit into a traditional investment horizon, often requiring FDA approval within a few years due to the slow and high-risk nature of healthtech. Start-ups still exploring their market are too early for Heka. The processes in healthtech are simply too slow and too risky for Heka to bet on them. Likewise science is a large blocker of development, so Heka has decided not to invest in it. Newfund only invests when the product is de-risked and FDA approval is 12-18 months away. Heka can then invest to finance clinical studies and FDA preparation. But this also means that most start-ups that Heka will invest in will have already raised a first round of financing to develop their final product.
Europe vs the USA 🌍
Anne-Sophie sees equal quality braintech start-ups in Europe and the USA, with the Nordics contributing 30% of her deal flow. However, monetization mainly occurs across the Atlantic, where start-ups can multiply their prices by 10x, 20x, or even 50x. Start-ups typically develop in the USA and secure follow-on funding from American investors before returning to Europe.
Anne-Sophie analyzed the braintech start-up market in 2023 and discovered that braintech start-ups raised €2.5bn globally in 2023 in VC funding (Seed to Series A with a few Series B deals), where 65% was in the USA. The American VC funds are also much more specialized than the European ones. Anne-Sophie is seeing funds specializing in only psychedelics, mental health, or neurological diseases, for example. The space is in general larger than many investors believe - in the last 12 months, Heka has screened more than 500 companies in their dealflow, and EQT Life Sciences recently raised a €250m VC fund focused only on dementia. See the graph below for a market size done by Deloitte in 2023:
FDA approvals ✅
Most healthtech funds invest in start-ups after the FDA approval has been secured as it minimizes risk and allows the investors to focus more on the market than the product in their due diligence.
Heka has chosen a different approach and invests before the FDA approval. They do so because they cooperate with the FondaMental Foundation, a research foundation dedicated to severe mental health issues (e.g., autism, schizophrenia), that helps them diligence all incoming deals.
They find deals earlier and can enter at a low valuation 📉 They believe that their research partnership gives them an advantage in derisking the investments early.
Anne-Sophie is trying to fill a market gap that she sees right before the FDA approval, which is when start-ups try to raise capital to make clinical trials for their FDA application but struggle to find it.
Partnership with FondaMental Foundation 🤝
FondaMental Foundation supports Heka by analyzing the scientific aspects of deals. On all deals, Anne-Sophie conducts a classic VC due diligence, but before investing, she asks FondaMental to find one or more specific experts on the relevant topic that she wishes to invest in. FondaMental finds the expert in 3 days and thereafter the expert has 10 days to make a scientific evaluation of the start-up.
The advantages of the partnership for FondaMental Foundation are dual: 1. They get the chance to cooperate with start-ups, which has always been their goal, as the start-ups are the organizations that can bring mental health solutions to the market. 2. The FondaMental Foundation also has a financial incentive as 20% of Heka’s carry is donated to the foundation 💰
Psychedelics 🍄
Anne-Sophie believes in the research potential of psychedelics, which could provide breakthroughs in treating diseases such as depression - and are gaining broad recognition after limited research for many years.
The market is, however, only in the USA as it is today. Anne-Sophie jokingly says that if she were to invest in psychedelics, it would probably have to wait until Heka Fund II or III 😄
Largest trend in braintech 📈
Anne-Sophie says that the largest trend in braintech today is techbio, i.e., any start-up serving the biotech industry with data-driven tech to transform drug discovery and patient care. We struggle to treat patients as we cannot 1. find patients, 2. diagnose them with certainty, and 3. develop treatments. With techbio and accelerated clinical trials, Anne-Sophie believes that we will be able to bring treatments much faster to patients 🚀
Conversely, Anne-Sophie says that certain models and solutions have opened up the market, but address only a small part of the problem. A major one is solutions that link therapeutists and employees. They are excellent for identifying employees in with mental health issues and meeting a need for access to a therapist. However, they are far from sufficient, as employees might not want to talk to therapists and anyway there aren't enough of them anyway. Anne-Sophie rhethorically asked “"What do you do with these people?”. She sees that there are still many solutions to be invented.
Tips for generalist impact VC investors 💡
Anne-Sophie’s best advice to impact generalists is to ensure that founders are well-connected with relevant doctors and researchers 🔬 She says that, in braintech, you need to have the right doctors and researchers among your advisors and investors to succeed and to sell - it’s a domain where nobody does it alone. So, as a VC, Anne-Sophie would recommend finding out who the most relevant people in the specific braintech vertical that a founder operates in are and then diligence whether a sufficient number of these people are connected to the start-up.
Extra: A VC firm with 200+ LPs 💼
Newfund’s large number of LPs has changed its approach to investor relations from that of a classical VC, but it hasn’t changed its investment thesis. Newfund uses a technological platform for easy information access and onboarding 📲 An app allows LPs to suggest talents, new investments, or other LPs and provides transparency and a general and regular update on all investments. Individuals often seek more information than institutional investors as they invest in the fund to be closer to start-ups, which has led Newfund to adapt its structures and processes.
