I have made several angel investments over the years across various sectors. Over time and after many iterations, I developed a tool to help me assess and keep track of companies I spoke with. When I moved to Norway from Australia in 2018, I started working more closely with accelerators and venture capital, particularly within the health ecosystem. Around 2020, I developed a health-specific investor network and began actively helping health companies prepare for investor interactions, as well as assisting investors in finding relevant opportunities.

In the course of that work, I realised that both investors new to the health industry and early-stage health companies could benefit from a similar framework I'd used to assess and prepare companies for investment. So, with the help of several other seasoned health investors, I adapted this high-level due diligence doc to be viewed through a health lens.

I use this framework to assess for myself or discuss with other investors, in a very preliminary way, whether the company is interesting enough to continue speaking with or dive deeper. I often do this on behalf of an investor as a screening process based on specific investment interests or criteria.

I do not share this document or the information in it with companies. I do, however, have another more detailed assessment tool that I use with companies to help them identify weaknesses they may benefit from addressing. I share that information with them if requested.

Each investor puts their individual weighting on different criteria that are important to them, but a lower score in any of these categories would likely raise doubts that would either exclude the company from investment altogether or trigger a more in-depth investigation from the investor before progressing. For instance, a low score in the "Landscape" category would indicate that the company does not understand the sector they are playing in as well as they probably should. This leads to a lower likelihood of the team being successful, and raises questions about whether they are addressing an unmet need in the marketplace, whether customers would ultimately buy the product they are developing, and the team's ability to secure and maintain a competitive advantage.

That being said, no company will get 5/5 for every section. The best companies will be aware of where they need to improve and be open to continuously learning from all possible sources. Additionally, most investors want to provide value beyond pure financial support, so a lower score in certain areas such as "Business/Distribution Model" could potentially even be a positive if the investors feel they have unique knowledge, connections, or experience in that area.

There are many elements that go into an investment decision, but there are five critical ingredients that must be there:

The team has hunger, grit, a passion that transcends making money, is open to learning and constructive feedback, and knows the industry, the science, and their company inside out.

The scientific viability has strong foundations, and an IP strategy has been considered.

The regulatory requirement and pathway has been determined for key target markets.

The competitive landscape and current/future threats have been well thought through.

Market potential is clear and large enough to secure the desired ROI.

Some areas can be fixed or improved more easily than others. But if there is a complete lack of understanding around customers and market need, it means that the product being developed may never be wanted or purchased, so that is a major concern difficult to remedy. If the company does not understand the science as well as they should, this is also problematic and a red flag for investors. If the cap table is 'broken' and the founders do not have enough equity to withstand future rounds and maintain enough incentive or hunger to reach the finish line, that is also challenging for some investors (particularly VC's) if it cannot be easily remedied.

An investment can be assessed and analysed to death, but whether we admit it or not, gut feel plays a role in many earlier-stage investments. Investors need to believe the team has developed a necessary product and will ultimately win over their competition, and belief is a somewhat arbitrary and personal determination. The investor/founder relationship often lasts well over a decade, which could be up to or more than 10% of your lifetime, so should not be entered into lightly. This is compounded in the health sector as the timeline to success and potential exit is often longer than in other industries, and therefore the lock-in period of an investment is also longer. Yet the only real way to get to know someone is to work closely with them over an extended period of time and see how they handle the ups and downs of running a company. This is a luxury most investors do not have, which is why 'gut-feel' remains a risk element for many investors.

To measure this, it could be likened to how you feel after you meet someone for the first time in a social or business setting. You can ask yourself questions like: Do they listen and make you feel heard? Is what they're saying believable and do you get a feeling of trust from them, or are they just saying what you want to hear? Are you excited to work with them and be associated with them? Do you want to know more about them and the project? Do you have the urge to tell others about them and the company? Based on their explanations, can you easily explain their idea to a third party? Do you think they have the ability to attract others to come with them on the journey (ie. employees, investors, partners, customers)?

The overall score should be taken with a grain of salt, and mainly used to determine at a high level whether a company is worth spending more time on or not — not as a final risk assessment. A top score of 5/5 for all categories in this sheet (which would not be realistic) would equal 195/195. If a company got an average rating of 3, that would equal 117. An average of 4 would equal 156/195. If a company gets lower than 100, they are likely too early or unprepared for investment.

In general, depending on the sections the lower scores landed on and what matters to the investor, a possible approach could be:

Above 137: A cumulative score that reflects a balance between risk and potential reward could be 70% of the total possible score (137/195). This would warrant further exploration of the investment opportunity. The company shows strength in most categories and any weaknesses may be areas for negotiation or risk mitigation strategies.

Between 110 - 136: Proceed with caution. This range could warrant a deeper dive into certain categories to further explore the potential of progressing discussions.

Below 110: This might be considered a no-go. The company likely has significant weaknesses in key areas that could pose too great a risk for investment.

 if you need any help preparing for fundraising or assessing/finding health-focused investment opportunities.

Jeremy McCrohan  

This resource contains information seasoned investors typically consider when evaluating potential health investments. While each investor weighs elements differently, there are some core categories that all investors will inquire about, and which all fundraising companies should have good answers for.

When getting to know new companies and assessing them for investment eligibility, each investor asks the questions that are important to them. While each investor weighs the various elements of a company and its team differently, there are some core categories that all investors will inquire about, and which all fundraising companies should have good answers for. 

We have outlined some of these topics and suggested some typical questions commonly asked by seasoned investors, viewed through a health lens. 

This document has been designed as a helpful starting point

, and we hope it will be used as a tool by investors, new to early stage, and/or health investing. We encourage you to use it, to add to or subtract from it as needed to make it your own. 

This document was compiled by Jeremy McCrohan, in conjunction with various expert health investors.

Health Investment Due Diligence Tool for Investors

Health Investment Due Diligence Tool

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