3 Diligence Considerations for Healthcare Investors

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At TMC Innovation, our breadth of experience working with digital health and medical device startups from problem identification to growth stage means we are uniquely positioned to conduct the in depth diligence required to ensure new solutions are well positioned for adoption and integration into healthcare.

We use these diligence assessments to provide customized support to healthcare startups on their paths to commercialization and work directly with investors to share what we learn about our portfolio companies’ value proposition and potential for successful market access.

Investors interested in the healthcare startup space may be curious about what aspects of a company we consider when conducting diligence.  Which criteria are the best indicators of potential market success?

At TMC Innovation, we have identified three primary areas of focus. The first is cost. Who pays for this solution to be used in health systems? The second is use. When this technology is implemented into health systems, will patients, clinicians, or administrators be the primary users? The third is evidence. How strong is the body of evidence that this solution offers enough value to see market success? When a startup can confidently and adequately address these questions, the chances of a successful entry into the market increase exponentially.


“The main focus of our diligence is to determine if company leadership really understands the problem they are trying to solve, and through that understanding, have uncovered a point of view that differentiates them from others.  If so, then their solution is likely valuable to their targeted user group and will get reimbursed at a premium.  All too often, we find that companies have a topical understanding of the problem, jump to a solution, and then try to fundraise.  The result tends to be frustrating for leadership as the process of diligence uncovers that their solution is mismatched to the actual problem.”
Tom Luby Ph.D., Director of Texas Medical Center Innovation (TMCi)


Let’s take a deeper dive into these three considerations:


  1. COST: While assessing a digital health startup’s feasibility, it’s important to determine whether or not the founders have built a viable, practical payment model into their product’s design. Who are the payors and who gets paid? We often meet founders who are so passionate about the benefits their solution will offer patients that they’ve forgotten to address this critical aspect of market feasibility. No matter how creative, effective, or clinically in-demand a solution may be, if it’s not clear who the payor is and what the payment model looks like, the concept is unlikely to experience a successful entry into the market.Let’s look at remote monitoring devices as an example. Over the past few years, we’ve seen a huge growth in the wearables market because of the way the technology facilitates virtual care delivery and because of the real-time feedback remote monitoring offers both patients and providers. A question that arises often with new wearable concepts, however, is, “who is the payor?” Wearables are often taken home and used by the patient, so should the patient pay? Or should the provider pay? Companies that see the most commercialization success are those who’ve carefully considered these questions and are able to communicate answers that are well-reasoned and demonstrate an understanding of the market
  2. USERS: When a new technology is being integrated into health systems, the “user” is the particular stakeholder tasked with being its primary operator. Designing a viable, valuable healthtech solution means considering not only the benefit it will bring to patient care and outcomes but also its impact on daily operations within a health system.  While researching a startup and its product, investors should assess whether the company has considered all potential users and if those users are equipped to incorporate this new technology into their workflows.

    Investors should understand what drives the goal of the device, is it for daily health updates or to manage a chronic medical condition? If the device provides useful information to the patient casually –  what payment model makes the most sense – a periodic sell? a subscription model?”
    S. Wesley Long, Medical Director Diagnostic Microbiology, Houston Methodist

    Let’s continue with the wearables example. Remote monitoring devices are by nature double-sided. There is the physical device worn by the patient to track health indicators, and there is the system into which data tracked by the worn device is fed. Founders working with remote monitoring technologies often consider the patient to be the obvious user, as they are the ones wearing and being monitored by the device. But this technology often features an additional user: the clinician in charge of managing the data that comes in from the device. If a wearable device is designed to monitor heart activity, there needs to be an operator who will receive the device’s data and who is prepared to take action, especially if the data indicates an emergency situation. Successful remote monitoring solutions are the ones that account for both users and work with health systems to develop feasible implementation plans. No matter how accurate and useful a remote monitoring system’s data may be, if there is no one in the health system prepared to analyze and act on the data, that solution will not be implemented successfully.

  3. EVIDENCE: Another consideration investors should look at when evaluating a healthtech startup is whether their solution has enough proof of its value in a clinical setting. Many early-stage startups focus on FDA clearance as evidence their product works. Though FDA clearance is a key milestone for commercialization, it doesn’t indicate how the market will adopt the product. It’s important for investors to look for founders who have an eye toward sustainable market growth and have a clear plan to build a body of evidence to support the market penetration of their product.Continuing with the example of remote monitoring technology, new wearable concepts need to prove that they are as good as the current gold standard in order to move forward toward adoption. If a wearable device is meant to track heart activity remotely so that a patient doesn’t need to remain in hospital, the company building that device must conduct trials that prove the device is as reliable as the current in-hospital monitoring standard.


At TMC Innovation, we know that founders develop their solutions because they are passionate about meeting an unmet need and improving outcomes for patients. But we also understand that investors need information beyond just the solutions themselves–things like market feasibility, health system workflow integration, and clinical trial data–to make decisions. Our accelerator programs are designed to help startups navigate these complex aspects of the commercialization process, and our depth of experience across a broad range of medical device and digital health companies means we can serve as a resource to investors looking to leverage our knowledge to make informed decisions on their next venture.


If you’re an investor interested in a diligence assessment for a health tech startup, schedule a 30-minute meeting with our team to discuss differentiated insights. Email us at

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