Rogelio de los Santos
Director General
Dalus Capital
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View from the Top

Long Way to Go for Health Startups

Wed, 09/06/2017 - 11:49

Q: What kinds of health startups are emerging in Mexico?

A: Mexico has enormous and untapped potential in many aspects, from medical devices to therapeutics. We see evermore sophisticated groups with relevant papers published in prestigious journals and I recently met with a financial group that created a startup for psychiatric treatments with a Big Data approach. Most things being cooked up are geared toward creating disruption in the health system but many are expensive, do not solve the root cause and drain more and more resources because people get sick. These groups are doctors or professionals tired of being on the other side of the equation and who are trying to provide solutions through technology to keep bigger communities healthy and avoid people reaching the treatment phase. We are an innovation-based fund but we do not plan to invest in taking a therapeutic through phases I-III. We consider how to deploy technology based on apps and Big Data to serve communities. 

Q: What steps into the health startup industry have you made so far?

A: We have not made any investments yet but we have one in progress. The first investment that we wanted to close with fund one, a US$70 million fund, was an app from a doctor based in Mexico City. He has been published in five or six top journals worldwide and had a solution for HPV diagnostics and a therapeutic solution for infection in both women and men. I was told that although the publications were great and the cases treated were real and verified, the team behind the app lacked the rigor and scientific approach to scale the project worldwide. Also, we have just met with a US company that has developed a solution applicable to the Mexican and Latin American markets to automate the diagnosis of cervical cancer through pap smears. Another company from Monterrey is working on a solution for diabetes by diagnosing symptoms in the eyes, feet and skin. It is establishing small outlets in heavy traffic areas and offers eye examinations. Now, it is working with corporations to lower insurance costs by installing technology on employee phones to track health habits and subtly influence them. The company promises to reduce insurance costs by up to 50 percent. In truth, this is an insurance scheme for corporate clients. Around 10 percent of the 1,000 opportunities we receive every year are in the health sector. However, to get into the health space, startups require more knowledge, a better network and understanding of the ecosystem.

Q: What is the standard process companies go through to receive financing from Dalus Capital?

A: They approach us and show us why they are different, why they have innovation behind them and why a customer would prefer to use their solution, product or service over existing ones. We evaluate the efficient scalability of their business model, which is a key constraint. We also try to determine if the problem they treat can be solved differently. In the early stages, we can help them configure the best approach to monetize that opportunity. After they pitch, if we like what we see then we decide on terms and conditions and perform due diligence. Lastly, we draw up an exclusion plan to mitigate the risks the venture faces and present it to the investment committee. On average we ask for 20-25 percent equity.

Q: What are your expectations for 2017?

A: Planning for a year is too short. If we do not solve chronic diseases, they will have a huge toll on people’s quality of life and on the finances of the country. They have a huge impact on social security costs because there is no budget that can withstand those problems. We are only delaying and not taking care of the problem as it is evolving. I expect the healthcare system to be more transparent, the incentives should be aligned with increasing quality of life at a lower cost, which is a big problem. Many solutions are not simply having more beds and doctors. We need to deploy technologies that can scale and can change this dichotomy and the dynamics of this industry. Watch out for AI and the cloud because they will shape this industry.