VC Identifies Market Opportunities In The Women’s Health And Wellness Space

Whether they are VCs or founders, women identify market opportunities that men ignore. Over the past few years, the women’s health and wellness sector has grown substantially. Female investors and founders are proving that there is a significant return on investment (ROI).

Still, words like vagina make many male VCs cringe and shut down when understanding the opportunities.

“Health and wellness investments focused on women only represent about 2% of all health investment,” said Jessica Karr, general partner at Coyote Ventures, which invests in women’s health and wellness, an under-invested sector.

Market conditions in 2022 presented headwinds. In 2022, the appetite for venture investments weakened from the highs of 2021. The share of deals and dollars going to female founders also declined from previous records.

So how can small, emerging, female venture fund managers raise money? By turning to an untapped source of funding: Female accredited investors.

Karr started her career at Impossible Foods in research and development when the company had only about 12 people. Before she left, she saw it grow to several hundred people. “I saw the impact of raising multiple venture capital rounds on the trajectory of the company and its ability to scale,” she exclaimed.

Wanting to see how else she could make an impact, Karr left to go to business school. After she graduated, Karr became a consultant to early-stage companies raising venture capital. “I saw firsthand the trouble female founders had [raising funding] compared to male founders,” she said.

“[It forced female founders] to be scrappy and lean,” said Karr. “They had great operational experience and were more likely to roll up their sleeves and do things their male counterparts didn’t have to do because they had the luxury of money.”

To expand her experience further, Karr joined a family office focused on gender equity that wanted to start a venture fund. When she began to see people in her network start funds, she leaped, too. In 2021, she began Coyote Ventures.

Coyote is focused on innovative women’s health and wellness in the consumer and digital space that does not require FDA approval. The venture fund is not just looking at conditions that solely affect women but those that disproportionately affect women, like mental health. Or conditions in which the symptoms differ between the sexes, such as heart disease.

An example of a portfolio company is Maude, a sexual wellness company.

Market forces made raising venture capital more accessible. In 2018, the Economic Growth Regulatory Relief and Consumer Protection Act was passed, enabling funds of $10 million or less to increase the number of accredited investors from 99 to 249. The change spurred a surge in VC funds started by women.

Nearly three-quarters of accredited female investors would write a check for $25,000 to become a limited partner (LP) in a venture fund, according to How Women (and Men) Invest in Startups.* But there is a perception that investing in venture capital as an LP is just for the ultra-rich.

“Companies like Carta innovated, making capital formation more affordable,” said Karr. “There were also accelerators for [emerging] fund managers,” said Karr. “VC Labs helped me figure out the size of the fund, narrowing down the [investment] thesis, and identifying who in my network to focus on for the first close.”

In 2021, tailwinds helped demonstrate the investment opportunities in women’s health. Kindbody and Maven Clinic raised large rounds, and Maven became a unicorn. Modern Fertility was acquired. In 2022, the overturning of Roe demonstrated the passion and need for women to focus on their health.

But small, emerging female founders faced headwinds, too. Compared to last year, investment in venture precipitously dropped for the first three quarters of this year by 22% for dollars and 11% for deals, according to Q3 2022 PitchBook-NVCA Venture Monitor.

The share of dollars raised by companies with at least one female founder dropped from 18.6% in 2017 to 17.2% in 2022. For solely female founders, the share dropped from 2.7% in 2019 to 1.9% in 2022. The share of deals for companies with at least one female founder dropped from 26.4% in 2021 to 25.5% in 2022. For solely female founders, the drop was from 6.8% to 6.7%.

Small, emerging, female manager funds face additional challenges than their white male counterparts. As first-, second-, and even third-time fund managers, they may be too early-stage to have established a track record. Institutional investors, in particular, want fund managers to have a traditional track record in the sector on which they are focused. An excellent track record as an operator or consultant doesn’t weigh into their due diligence formulas. Many make significant investments of tens of millions—if not hundreds of millions of dollars—and would overwhelm small funds.

As a first-time fund manager, most of Coyote’s LPs are accredited investors, though not all. Bank of America is the largest institutional investor. They look for partners and acquisition targets and use different criteria to evaluate investments. Payors or provider networks are examples of other types of companies that would be an excellent strategic fit for Coyote.

Coyote also has investments from family offices, such as The Case for Her and Tripple.

During this market downturn, Karr is finding it important to educate potential LPs that health and consumer staples investments are less likely to be impacted by the downturn and that female founders are more resilient. Female founders had lower burn rates, more significant valuation growth at the early stage, and lower valuation declines at the late stage compared to all-male-founded firms, according to All In: Female Founders in the U.S. VC Ecosystem.

Venture capital needs to be more accessible to accredited investors, especially women. Women’s long-term investment style, spreading risk by buying diversified funds, and trading less frequently than men, can lead to good returns. Depending on their risk tolerance, investment objectives, and passion, allocating a small portion of women’s portfolios to investing in startups can be attractive.

Investing in venture funds would be more affordable if the number of investors was raised from 249 to 499 for micro funds, and the fund size increased from $10 million to $50 million. Increasing the number of accredited investors in small, emerging, diverse funds will enable them to accept checks of $25,000 or less. Lifting the ceiling on the fund size allows for the fund to be sustainable before it starts to distribute fund profits.

In which sectors do you see market opportunities?