By sector
Healthtech diligence
Regulatory pathway, clinical evidence, who actually pays, and sales cycles measured in years rather than quarters.
Realistic time Twelve to twenty hours, including a clinical call
Health companies fail for reasons that have nothing to do with whether the product works. The three characteristic causes are a regulatory pathway that is longer or different from the one assumed, an absence of evidence that the people who make purchasing decisions accept, and a reimbursement position that means nobody has a budget to pay.
The person who benefits, the person who decides and the person who pays are frequently three different parties in healthcare, and a product that delights patients can fail entirely because no institution has a line item for it. Establishing the payer is often the most decisive question in the whole assessment.
The final structural feature is time. Health sales cycles are long, procurement is institutional, and pilots that look like traction frequently do not convert. A company with fifteen hospital pilots and two paying contracts after three years has less than the pilot count suggests.
01
Regulatory pathway
Establish the classification of the product and the route to market that follows from it. Software that supports a clinician's decision, software that makes a diagnosis, a wellness application and a medical device are regulated very differently, and companies sometimes describe themselves in the least burdensome category available.
Ask what has actually been obtained, from which regulator, and for which claims. Approvals are specific to indications and claims, and a clearance for one use does not extend to another. Registers are public in most major markets, and checking directly is quick.
Then ask what claims the company makes in its marketing. A product cleared for one thing and marketed for another is a regulatory problem waiting to happen, and it is one of the more common failures in the sector.
Check
- How is the product classified, and by whom?
- What approvals or clearances exist, for what indications and claims?
- Verify on the regulator's public register directly.
- Do the marketing claims match the cleared claims?
- What is required for the next market the company plans to enter?
- Has the company engaged with the regulator, and what was said?
02
Clinical evidence
The evidence bar is set by whoever must be persuaded to buy, and it is usually higher than founders initially expect. A retrospective analysis of existing data may satisfy an early adopter; a health system procurement process frequently wants prospective, controlled evidence, and generating it takes years.
Ask what evidence exists, who generated it, whether it is published and peer-reviewed, and what the intended buyers have said they require. That last question is the useful one — evidence that satisfies the company is not the same as evidence that satisfies the purchaser.
A clinical adviser call is worth an enormous amount here. A practising clinician in the relevant specialty can tell you in thirty minutes whether the workflow is realistic, whether the evidence is persuasive to their peers, and whether they would use the product.
Check
- What clinical evidence exists, and is it published and peer-reviewed?
- Was it generated independently or by the company?
- What evidence have target buyers said they require?
- Speak to a practising clinician in the relevant specialty.
- Does the product fit an existing clinical workflow, or require changing it?
03
Who pays
Trace the money explicitly: who has a budget, what line does this come out of, what does it displace, and who signs. In systems with reimbursement codes, whether an applicable code exists is close to a binary question about the business.
Where there is no reimbursement route, the company must sell on cost saving or outcome improvement to an institution, which requires evidence of a different kind — economic rather than clinical — and a procurement process that can take a year or more.
Beware of pilots. Innovation budgets fund pilots readily and operational budgets fund deployments rarely. The conversion rate from pilot to paid contract is the number that matters, and companies frequently report the pilot count instead.
Check
- Who is the payer, and from which budget?
- Is there an applicable reimbursement code or route?
- How many pilots have converted to paid contracts, and over what period?
- What is the length of a typical procurement process?
- What does the purchase displace, and who loses budget as a result?
04
Data, privacy and liability
Health data is among the most heavily regulated categories anywhere, and the obligations are substantive rather than procedural. Establish the lawful basis for processing, where data is stored, what agreements are in place with institutions, and whether the company has been audited.
Clinical liability deserves a direct question. If the product influences a clinical decision that turns out badly, where does responsibility sit, and what insurance is carried?
Check
- Lawful basis for processing health data, and where it is stored.
- Data processing and sharing agreements with institutions.
- Any security incidents or breaches?
- Where does clinical liability sit, and what insurance is in place?
- Has an information governance review been passed at any customer?
Stop and think
Red flags
- A regulatory classification chosen to be the least burdensome rather than the most accurate.
- Marketing claims broader than the cleared indications.
- Clinical evidence generated entirely in-house and not peer-reviewed.
- Many pilots and very few converted paid contracts, presented as traction.
- No identified payer or budget line for the product.
- A workflow that requires clinicians to change how they work, with no evidence they will.
- Health data processed without a clearly documented lawful basis.
Take these into the room
Questions to ask the founders
- How is the product classified, and what exactly has been cleared?
- What evidence have your target buyers told you they need?
- How many pilots have converted to paid contracts, and how long did it take?
- Who signs the purchase order, and out of which budget?
- What happens if a clinician relies on your output and the outcome is bad?
- Which clinician outside your advisory board would vouch for this?
- What would the regulator say about your current marketing claims?
From the decoder