The Big Read

The Venture Monologues: How femtech is reshaping venture capital

Illustration by Mikie Jae
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Jessica Ching wasn’t actually present when she first faced sexism from a prospective investor.  

The 34-year-old inventor of Eve, an at-home testing kit for HPV and other sexually-transmitted infections (STIs), had a conflicting meeting, so her co-founder Evan Moses presented to a group of potential investors in her place. After the panel, the event’s organizer approached Moses and asked about Ching. When he learned why she was absent, according to Moses, he said, “That’s too bad; she would have looked really good on stage.”

“Evan was uncomfortable, I felt icky,” Ching says. “We didn’t pursue any investments through [them].”

Despite the incident—and thanks to some tenacity and persistence—Eve Medical went on to raise more than a million dollars in its 2014-2015 seed round, exceeding the original $750,000 goal. With the device available online to order across Canada, Ching is looking to another round of funding in 2019 to help expand into the U.S.

It’s a good time to grow: femtech—technology like apps or medical devices that service the specific health needs of women—is on the rise.

But while things may be changing, convincing a room full of men—and it is mostly men—that the market for women’s health care technology even exists is an ongoing feat.

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Femtech companies worldwide have secured over US$1.1 billion since 2014, according to the research firm CB Insights. Pitchbook, which tracks venture capital investment deals, estimates that 2018 saw nearly US$400 million invested in the category as of Oct. 31, 2018. Investment in the sector has increased annually since 2016—the same year the term “femtech” was coined—and is up substantially from 10 years ago, when a mere US$23 million was poured into the category.

The femtech boon stems from a host of factors, some of which are hard to quantify. For instance, a new generation of women more comfortable talking about their bodies has drawn attention to the space; the rates of women entrepreneurs has increased; and there’s now a name for the category, letting investors more easily allocate money to it.

Since women make upwards of 90 per cent of health purchases globally, and they are 75 per cent more likely than men to turn to digital health companies, a report from research firm Frost & Sullivan predicts that the category will balloon to more than US$50 billion by 2025.

Talking Point

Femtech—technology like apps and medical devices that service the specific health needs of women—is on the rise. Investment in the category reached an estimated US$400 million in 2018, up from US$23 million 10 years ago. Despite the improvements in the long overlooked sector, women in femtech maintain that convincing a room full of male investors that the market for women’s healthcare technology exists remains an ongoing feat.

“This isn’t a cottage industry anymore. It’s well beyond that,” says Jonathan Hera, founder and managing partner at Toronto-based Marigold Capital, which is prioritizing femtech and gender-based healthcare startups, with 10 women’s healthcare, gender-based violence or sextech companies currently in its portfolio.  

Take Eve. Unlike a traditional pap test, Eve swabs for the DNA of the HPV virus most likely to cause cancerous growths (one study found that this form of testing is 99 per cent accurate, whereas a traditional pap smear, which use lab techs to examines samples of abnormal cells, is only 95 per cent accurate). For $115, customers receive what looks like a puffy leaf with a stem, which is used to swab the inside of the vagina. The Health Canada-approved device is sent back to Eve for screening in an accredited lab (the same used to analyze swabs taken at a doctor’s office), and users are directed to seek medical advice if necessary.

Pap tests are one of the most effective ways to screen for abnormal cervical cells that can cause cancer. Women between 25 and 69 should get a pap every three years, according to the Public Health Agency of Canada. Yet despite its necessity, 30 to 40 per cent of women skip the test for a variety of reasons, such as discomfort or inconvenience, and only a third do the procedure as frequently as they should, according to Ching’s market research. As one of the first medical devices that allows for at-home HPV testing in Canada, and with more than 10 million Canadians falling in the pap’s age demographic, Eve has a potentially sizeable market. And there are plenty of opportunities abroad: STI testing globally is expected to become a US$17-billion industry by 2020, according to the research firm Grand View Research.

Ching was nervous going into her pitch. Thanks to a small funding round from the Ontario Centre of Excellence, Eve had a working prototype, which she says made showcasing the product easier. But Ching still had to speak with a bunch of men about female anatomy.

“I remember talking quite a bit about about how do we deal with the fact that we’re talking about vaginas,” says Ching. “How do we make this not uncomfortable for the people in the room? I didn’t want to turn people off.”

To address that, she ended up adopting a clinical approach to her language. “At the end of the day, most people in the room are men, but they have women in their lives,” she says. “Even when they don’t understand the experience of what getting a pap test is like, they’ll go home and ask their wives. Then they come back and tell me it’s a good idea.”

“But how crazy is that?” says Vicki Saunders, founder of Toronto’s SheEO, a non-profit funder for women. Female health experiences are easily Google-able, and it’s mind-boggling that the men in the room still need to ask their wives if it’s a good idea, she says.

One of the biggest barriers in this category is the persistent lack of women around the funding decision-making table, she adds. A 2018 study from Toronto Female Funders found that only 14 per cent of VC and angel investing decision-makers in Canada were women, while two-thirds of all venture capital companies in the country had no women in a senior role.

Women already face systemic barriers when seeking financing—a Harvard Business Review study found they were more likely to be asked harder questions, and walked away with five times less funding than their male counterparts. Indeed, in 2017, women received 2.2 per cent of all VC funding in the U.S., according to Pitchbook numbers (women of colour receive only a tiny fraction of that, according to various studies and estimates). Here in Canada, a study by MaRS estimated only 5.2 per cent of companies that received VC funding had a female founder. Add women’s bodies to the mix, and the men in the room start squirming.

“I can tell within five minutes [if it’s going to work with an investor],” says Julia Cheek, founder and CEO of Texas-based EverlyWell. The platform allows people to order at-home tests that may have traditionally come from a doctor’s office, such as cholesterol and lipids tests, or hormonal tests that affect fertility. While also available for men, most of EverlyWell’s kits skew toward women, says Cheek. When Cheek first began pitching, she says she was dismissed in upwards of 90 per cent of her meetings, and it took her four years to scrape together funding to launch her platform.

“[Male investors] often go, ‘Well, who is buying this? Nobody is going to spend money on this. Nobody needs these tests,’” says Cheek. She ignored the naysayers and persisted in looking for funding, eventually raising more than US$5.3 million to launch the company. “Well, 150,000 people are buying [our solution], and we’ve done US$20 million in sales in the last year.”

It’s not just men who are hesitant, says Chia Chia Sun, founder and CEO of Toronto-based Damiva, which makes all-natural vaginal and skin products for aging women. When she first pitched to an all-female advisory board, it left her feeling dejected. “It was literally the worst presentation of my life,” she says. “They told me they didn’t expect my product to succeed, that they didn’t expect me to find financing. As a woman, it can be hard to get behind something we feel so uncomfortable about.”

Despite the dire warnings, Sun’s two male investors jumped at the opportunity, and today, Damiva products are available in more than 4,000 pharmacies in Canada and the U.S., with plans to more than triple distribution in early 2019. She’s currently evaluating potential investors or new forms of partnerships to help the company grow further.

So many aspects of women’s health are taboo—from menstruation to sexual pleasure to incontinence—it just makes people uncomfortable, she says. Case-in-point: Damiva products are usually sold alongside tampons and pads in what advisers once described to Sun as the “three-second aisle,” named for women’s flighty snatch-and-flee approach to product selection.

To get around bodily taboos, most femtech founders seeking funding have to “sanitize” their pitch and speak in clinical terms, says Hera. That can dim the “excitement” (“Oh my God! I don’t need to be swabbed by an uncomfortable device every three years?” or “I can be going through menopause AND still enjoy sex?”) around a product, he says.

The Canadian marketplace also doesn’t favour healthcare innovation, and investors here are more risk-averse. “We’ll write smaller cheques at a later stage, once the idea has been proven and the risk has been mitigated away,” says Hera. But the health category—particularly medical devices and products that need to go through the rigours of Health Canada testing—are much more expensive to get off the ground, and that makes many investors wary. Only 13 per cent of all VC funding in Canada went to healthcare businesses in the past four quarters, according to a report from PwC. And, using MaRS’ estimate that only 5.2 per cent of funding goes to companies with a female founder, a generous approximation leaves Canadian femtech with a mere $17 million in financing over the past year. (The exact amount is likely lower, given that not all women entrepreneurs in health tech are necessarily femtech founders.)

Health companies require greater investments than software platforms, says Michelle Scarborough, managing director of strategic investments at the Business Development Bank of Canada (BDC)’s Women in Tech fund. An app can be developed and brought to market with a couple million, but R&D alone for a medical device can costs tens, if not hundreds, of millions. That’s why many of the biggest femtech names—like period-tracking Clue and Fertility Friend—are apps, rather than physical devices.

Women’s health issues are also missed as potential market opportunities, argues Cheek,  because the issues themselves may never come to light. “Research [shows] women’s health complaints are often ignored,” she says. “But [male investors] often go, ‘Well, who is buying this? Nobody is going to spend money on this. Nobody needs these tests. The doctors listen and women can get these tests if they’re actually needed.’”

Clinical trials tend to be weighted toward men, who are less likely to skew the results based on their monthly hormonal changes (between the 1960s and 2000s, women of childbearing age were also often excluded entirely from trials, until governments began mandating companies include them). Big pharmaceutical companies still rely heavily on self-reported surveys to inform their R&D, and people who view reproductive health as taboo aren’t as likely to be honest in reporting, says Sun, who worked for pharmaceutical companies prior to founding Damiva.

For example, Sun didn’t know that after chemotherapy, women can live with vaginal dryness for life, despite spending most of her career working in cancer care and genetics. “I just assumed it came back,” she says. In her research for her product, Sun saw wildly different numbers on how prevalent the issue of dryness is among older women as well: some estimates say only a quarter of menopausal and postmenopausal women experience dryness; others put it at 45 per cent; while others still put the number at 67 per cent. “But really, 100 per cent of women will suffer dryness after menopause at some point,” she says, pointing to her own market research. It’s difficult for anyone to want to back a women’s health organization without the right research.

As a result, femtech is still only a fraction of the overall healthcare space, which Frost & Sullivan estimates will be worth US$2.6 trillion by 2025.

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But things are changing, albeit slowly, and it’s a great time for certain categories of femtech, says Suzanne Siemens, co-founder of Vancouver-based Lunapads, one of the first period-panty and reusable menstrual product-makers in the world.

For one thing, the conversations happening around women’s health has grown, particularly with millennials, she says. The taboos aren’t gone (a 2018 study from period underwear maker Thinx found that 51 per cent of men think it’s inappropriate to talk about menstruation at work, while 41 per cent of women said they’ve experienced period shaming), but young people, and even investors, are generally more comfortable talking about topics like periods, hair loss and incontinence, says Siemens.

As women’s bodily functions become less stigmatized, technology—like apps and connected devices—has also enabled people to take charge of their health more broadly. Layer in the reality that, according to Frost & Sullivan, women are more likely than men to adopt new health technologies and products, the uptick in femtech makes sense.  

There’s also more money geared at female-fronted organizations more generally, and femtech specifically. In 2018, U.S.-based Portfolia, a women’s venture fund, unveiled an entire portfolio for femtech, investing in 249 companies in its first round. A hundred more are on a wait list, according to the company. In Canada, the BDC rolled out its $200-million Women in Tech fund last summer, and has since invested in one femtech company, with “dozens” more in the pipeline, according to Scarborough.

Having a name to put to the category helps, Siemens adds. “With a name, investors can align themselves with it,” she says. Couple all that with the fact that investors are simply talking about femtech’s viability at all, and there’s a snowball effect happening in the space.

For example, Lunapads has operated on an initial seed investment from family, friends and Renewal Partners, a philanthropic business funder, for the past 18 years. But looking at the current market—where companies like New York-based Thinx and Toronto’s Knix have been making names for themselves—Siemens says it was the right time to scale the business. Lunapads is currently seeking funding, particularly with impact investors, and while talking about menstrual products can be difficult and awkward for some, she says the tone of conversation has changed since 2000, and investors more readily understand the business opportunity for reusable period products.

“I’m getting emails from people saying, ‘Are you looking for money?’” she says. These emails are typically jumping-off points, she adds, and while not all are perfect fits (Lunapads tends to gravitate toward impact and social good investors), it’s leading to far more funding conversations than she thought possible. “There’s just such a high level of interest in femtech. It’s become a bit of a movement.”