From Pre-Seed to IPO: A Health Tech Founder’s Guide to Venture Rounds
ARE WE BACK? Sam Altman-backed AI biotech announces $1 billion for its lofty goal: adding 10 years to human life span
Dear Subscribers,
Welcome to the latest HealthVC newsletter. As a managing partner at a Clarma Capital, I’ve had the privilege of working with countless startups navigating the complex world of fundraising. Venture rounds are the lifeblood of early-stage companies, providing not only the capital needed to grow but also the strategic support to scale effectively. In this newsletter, I’ll break down what venture rounds are, the different stages of fundraising, and why they matter—especially for health tech startups aiming to transform the healthcare landscape.
What Is a Venture Round?
A venture round is a formalized phase in a startup’s fundraising journey where external capital is raised from venture capital (VC) firms, angel investors, or institutional investors. In exchange for their investment, these stakeholders typically receive equity in the company or convertible securities (such as convertible notes or SAFEs). Venture rounds are critical for startups looking to accelerate growth, expand operations, and achieve key milestones.
For health tech companies, venture rounds are particularly important. The healthcare industry is capital-intensive, requiring significant investment in research and development, regulatory compliance, and market penetration. Securing venture funding allows these companies to innovate, validate their solutions, and bring life-changing technologies to market.
The Different Types of Venture Rounds
Venture rounds are typically categorized by the stage of the company’s development. Each round serves a distinct purpose and attracts different types of investors. Let’s explore these stages in detail:
1. Pre-Seed Round
The pre-seed round is often the first external funding a startup receives. At this stage, the company may still be in the ideation phase, conducting market research, or building a prototype. Pre-seed funding is usually sourced from friends and family, angel investors, or startup incubators and accelerators.
Why It Matters for Health Tech:
In health tech, pre-seed funding is often used to validate the feasibility of a medical innovation, conduct early-stage research, or build a minimum viable product (MVP). For example, a startup developing a new digital health platform might use pre-seed funds to create a prototype and gather initial user feedback.
2. Seed Round
The seed round is the first official equity fundraising stage. Startups at this stage are typically focused on validating their business model, building their MVP, and achieving early market traction. Seed investors often include angel investors, early-stage VC firms, and sometimes corporate venture arms.
Why It Matters for Health Tech:
Seed funding is crucial for health tech startups to demonstrate proof of concept. Whether it’s a new medical device, a telehealth platform, or an AI-driven diagnostic tool, seed capital helps bridge the gap between innovation and commercialization.
3. Series A Round
The Series A round is where startups begin to scale. By this stage, the company should have a proven product, initial market traction, and a clear path to growth. Series A investors are typically venture capital firms that specialize in early-stage investments.
Why It Matters for Health Tech:
In health tech, Series A funding is often used to expand the team, invest in clinical trials, or scale operations. For instance, a digital therapeutics company might use Series A funds to conduct a pivotal clinical study required for FDA approval.
4. Series B Round
Series B rounds are for companies that have achieved significant growth and are ready to scale further. At this stage, the business model is proven, and the focus shifts to market expansion, operational scaling, and product diversification.
Why It Matters for Health Tech:
Health tech companies at the Series B stage might use the funds to enter new markets, invest in sales and marketing, or expand their product portfolio. For example, a genomics company might use Series B funding to launch a new suite of diagnostic tests.
5. Series C, D, and Beyond
Later-stage rounds (Series C, D, E, etc.) are designed to fuel large-scale growth, international expansion, and strategic acquisitions. Companies at this stage are often preparing for an IPO or a significant liquidity event.
Why It Matters for Health Tech:
In health tech, later-stage funding can support global expansion, large-scale clinical trials, or acquisitions of complementary technologies. For example, a health tech company specializing in remote patient monitoring might use Series C funding to acquire a smaller competitor and expand its market share.
The Benefits of Venture Rounds
Venture rounds offer far more than just capital. Here’s why they’re so valuable for startups, especially in the health tech space:
1. Capital Infusion
The most obvious benefit is the injection of capital, which allows startups to execute their business plans, invest in R&D, and scale operations. In health tech, where innovation often requires significant upfront investment, this funding is critical.
2. Expertise and Mentorship
VC firms bring more than just money—they bring expertise. At our health tech fund, we work closely with portfolio companies to provide strategic guidance, industry insights, and mentorship. This support can be invaluable for navigating the complexities of the healthcare industry.
3. Market Validation
Raising venture capital is a strong signal of market validation. It demonstrates that experienced investors believe in the company’s potential, which can boost credibility with customers, partners, and future investors.
4. Network and Resources
VC firms have extensive networks that can open doors to new opportunities, strategic partnerships, and customers. For health tech startups, this might mean introductions to key opinion leaders, healthcare providers, or regulatory experts.
The Venture Capital Process
Understanding the VC process is crucial for any entrepreneur. Here’s a step-by-step overview:
Pitching and Due Diligence: Startups pitch their business plans to VC firms. If there’s interest, the VC conducts due diligence to assess the company’s potential, team, market opportunity, and competitive landscape.
Term Sheet Negotiation: If due diligence is successful, the VC presents a term sheet outlining the proposed investment terms, valuation, and conditions.
Legal Documentation: Once terms are agreed upon, legal documentation is prepared, and the investment is finalized. This often involves issuing preferred shares or convertible securities.
Post-Investment Support: After the investment, the VC firm provides ongoing support, including strategic guidance, mentorship, and access to resources.
Real-World Examples of Health Tech Venture Rounds
To illustrate the concepts discussed, let’s look at a few examples of health tech companies that successfully navigated venture rounds:
Pre-Seed Example: A digital health startup developing an AI-powered mental health app raised $500,000 in a pre-seed round from angel investors and a health tech accelerator. The funds were used to build an MVP and conduct a pilot study with a small group of users.
Series A Example: A telemedicine platform raised $10 million in a Series A round led by a prominent VC firm. The funding enabled the company to expand its platform, hire key personnel, and secure partnerships with healthcare providers.
Series B Example: A genomics company raised $50 million in a Series B round to scale its operations, launch a new line of diagnostic tests, and enter international markets.
Series C Example: A remote patient monitoring company raised $100 million in a Series C round to acquire a competitor and prepare for an IPO.
These examples highlight how venture rounds can fuel growth and innovation at every stage of a health tech company’s journey.
Key Metrics and Milestones Investors Look For
Investors evaluate startups based on specific metrics and milestones, which vary depending on the stage of the company. Here’s what we typically look for in health tech startups:
Pre-Seed/Seed Stage:
A strong founding team with relevant expertise in healthcare and technology.
A clear problem-solution fit and a compelling value proposition.
Early traction, such as pilot studies, user feedback, or partnerships with healthcare providers.
Series A Stage:
Demonstrated product-market fit and early revenue.
Clinical validation (if applicable) or regulatory milestones (e.g., FDA clearance).
A scalable business model and a clear path to growth.
Series B and Beyond:
Significant revenue growth and a proven business model.
Expansion into new markets or product lines.
Strong unit economics and a clear path to profitability.
For health tech companies, regulatory milestones (e.g., FDA approval) and reimbursement strategies (e.g., securing Medicare coverage) are particularly important.
Challenges Specific to Health Tech Fundraising
Health tech startups face unique challenges when raising venture capital, including:
Regulatory Hurdles: Navigating the complex regulatory landscape can be time-consuming and costly. Investors want to see a clear plan for achieving regulatory approval.
Reimbursement Uncertainty: Securing reimbursement from payers is critical for many health tech solutions. Startups need to demonstrate a viable reimbursement strategy.
Long Sales Cycles: Selling to healthcare providers and payers often involves long sales cycles, which can impact cash flow and growth.
Clinical Validation: Investors want to see robust clinical evidence supporting the efficacy and safety of a health tech solution.
Understanding these challenges and addressing them proactively can make a startup more attractive to investors.
The Role of Strategic Investors in Health Tech
In addition to traditional VC firms, health tech startups often attract strategic investors, such as pharmaceutical companies, healthcare providers, and medical device manufacturers. These investors bring industry-specific expertise, distribution channels, and partnerships that can accelerate growth.
For example, a digital therapeutics startup might partner with a pharmaceutical company to co-develop a solution for a specific disease. Similarly, a telemedicine platform might collaborate with a hospital system to pilot its technology.
Strategic investors can also provide validation and credibility, making it easier to attract additional funding and customers.
Exit Strategies and Their Importance in Venture Rounds
Exit strategies are a critical consideration for both startups and investors. Common exit strategies in health tech include:
Initial Public Offering (IPO): Going public can provide significant liquidity and visibility. However, it requires strong financial performance and market conditions.
Acquisition: Many health tech startups are acquired by larger companies, such as pharmaceutical firms, medical device manufacturers, or tech giants.
Merger: Merging with another company can create synergies and accelerate growth.
Investors want to see a clear exit strategy that aligns with the company’s long-term vision and market dynamics.
The Impact of Regulatory and Reimbursement Considerations
Regulatory and reimbursement considerations are critical for health tech startups. Here’s why:
Regulatory Approval: Achieving regulatory approval (e.g., FDA clearance) is often a key milestone for health tech companies. Investors want to see a clear regulatory strategy and timeline.
Reimbursement Strategy: Securing reimbursement from payers (e.g., Medicare, private insurers) is essential for many health tech solutions. Startups need to demonstrate a viable reimbursement strategy and engage with payers early in the process.
For example, a digital health startup developing a new remote monitoring solution might need to secure CPT codes (Current Procedural Terminology codes) to enable reimbursement from insurers.
Conclusion
Venture rounds are transformative events that enable health tech startups to grow, innovate, and achieve their vision. By understanding the different stages of fundraising, the key metrics investors look for, and the unique challenges of the health tech industry, entrepreneurs can position their companies for success.
As a managing partner at Clarma Capital, my goal is not only to provide capital but also to empower entrepreneurs with the resources, expertise, and network they need to succeed. If you’re a health tech founder navigating the fundraising journey, I encourage you to think strategically about your goals, milestones, and the right partners to help you achieve them.
Here’s to building the future of healthcare, one venture round at a time.
P.S. DO NOT MISS THIS:
🚀 The HealthTech Investment Accelerator: A 30-Day Challenge for LPs 🩺💡
Are you ready to unlock the future of health tech investing and take your portfolio strategy to the next level? Whether you're a seasoned LP or just beginning your journey in health tech, this 30-day challenge is designed to give you the insights, tools, and frameworks to thrive in one of the most dynamic sectors.
💼 What You’ll Learn:
✅ The biggest trends shaping health tech from 2025–2030
✅ How to spot the next big health tech opportunity
✅ Tools for evaluating startups and mitigating risks
✅ Strategies for diversifying across sub-sectors like MedTech, Biotech, and Digital Health
✅ Best practices for collaborating with founders and GPs to maximize returns
🎯 At the end of the challenge, you’ll walk away with:
🔹 A personalized health tech investment plan
🔹 Downloadable resources like due diligence checklists and deal flow trackers
🔹 Practical strategies to accelerate your success in this high-growth sector
This is not just another course—it’s a step-by-step framework delivered in bite-sized, actionable daily lessons to fit into your busy schedule.
👉 Ready to join the challenge? Sign up now to secure your spot!
📅 Start Date: 15th February 2025
💻 Delivered via email (no fluff, just value).
🔗 Reply LP or DM me to join.
Let’s shape the future of health tech—one smart investment at a time.
Don’t forget to check out the HealthVC on YouTube and The Terminology of Venture Capital on Amazon.
Now let’s take a look at the latest funding rounds, and M&A deals as well as the latest articles and videos worth reading and watching.