How 3 of the top sports, wellness, and healthtech VCs
- Investors who finance sports, health tech, and wellness startups are still writing checks.
- But venture capitalists are screening companies more carefully and keeping an eye on cash reserves.
- Total venture funding across industries decreased 23% in the second quarter, CB Insights says.
Investor Kate Delhagen describes the current economy in terms a geologist would likely fear.
“All the seismic plates are spinning at the same time,” she said. “That’s the analogy. It’s unprecedented. None of us have the answers.”
In January, Insider asked Delhagen, who invests in sports and technology companies through Oregon Sports Angels, for her 2022 investment outlook. With the economy rippling with uncertainty, Delhagen’s investment strategy has understandably shifted. The same can be said for Steve Ahern of KB Partners and Path Ahead Ventures principal Payam Daniel Abbassian.
All three investors are among a list of VCs who regularly invest in sports, health tech, and wellness companies.
Across all industries, venture funding decreased 23% in the second quarter to $108.5 billion, across 7,651 deals, according to CB Insights. That’s the biggest quarterly percentage drop in the number of deals in a decade.
Delhagen, Ahern, and Abbassian are still writing checks, but they’re evaluating companies more carefully and keeping an eye on how founders are spending cash.
‘A maybe is now an easier no’
When deciding whether to invest in a startup, Delhagen and Oregon Sports Angels recently added a new screening question: Is there really a need in the market for this company’s product?
“A ‘maybe’ is now an easier ‘no’ for us,” Delhagen said. “There’s a big shift in mindset from nice-to-have to need-to-have. If you can demonstrate a clear, obvious need for something, then it at least screens in based on that filter.”
Oregon Sports Angels, which marks its fifth anniversary in December, hosted a pitch day in June. It invested in Wild Rye, a women’s outdoor apparel brand. It’s now invested more than $6 million in about two dozen companies.
“We’re still in the game and we’re still investing,” Delhagen said.
However, she added that some of the group’s angel investors have shifted funds from venture capital to real estate, a safer port in an economic storm.
She also said the firm is taking longer to close deals. Transactions that got done in 30 days last year could take 60 right now.
How soon can startups reach profitability
Chicago-based KB Partners, which invests at the “intersection of sports and technology,” recently closed a $125 million investment fund, the firm’s second fund. The firm’s first fund was about $40 million.
“We have $125 million that we’ve told our investors will be put to work over the next few years,” Ahern said. “We’re doing deals kind of how we always have.”
Ahern characterized the firm’s investment approach as “conservative.” Recent investments include the weighted-apparel company Omorpho and Tixologi, a blockchain-based ticketing platform.
KB Partners typically exits investments in five to seven years and invests in companies that have yet to turn a profit. Ahern said one thing that has changed is the firm is paying more attention to when company founders expect to turn the bottom line from red to black.
“We’re definitely looking for companies that can turn on profitability a little bit more quickly,” he said.
KB Partners also wants portfolio companies to have bigger financial runways, meaning how long they can wait to raise more cash from investors.
“Maybe in the past we’d look for 12 to 18 months of runway,” Ahern said. “Now we’re pushing for closer to 24 months.”
Understanding why and where founders are spending money
When outdoor retailer REI launched Path Ahead Ventures, a $30 million fund, in October, the objective was to back founders of color. Abbassian, principal of the fund, said he’s still “eager to write more checks,” despite the economic landscape.
“While venture capital has slowed down, founders haven’t,” he told Insider in an email. “Founders of color have historically been overlooked and under-resourced, so with less capital being deployed overall, we’re doing as much as we can to support founders.”
Still, like other investors, Abbassian said the fund is spending more time studying businesses.
“We continue to run the same process, but we’re looking at a few things more closely,” he said. “Among them are understanding where money is being spent and why over the next 12 months, what challenges the business could face in the near-term like supply chain issues, and how founders respond to adversity.”
Abbassian is advising founders to watch expenses as they navigate a market downturn.
“Any guess is a best guess to when things will turn a corner, so we believe focusing on the activities that drive business and its key metrics is a best practice right now,” he said.