Fundraising is one of the most critical challenges that digital health and health tech founders face as they build and scale their businesses. Whether you’re new to the fundraising process and at the beginning of your entrepreneurial journey, or you’re a seasoned expert preparing for a significant growth round, understanding the nuances of each stage of funding can make the difference between success and failure.

The current health tech investment landscape is much different than it was two years ago, when cash was flowing from a firehose and valuations were astronomical. Today’s investors have set a much higher bar for digital health founders seeking capital. Below is some advice from the Nixon Gwilt Law team for how to make the fundraising process go as smoothly – and as quickly – as possible.

Tips for Digital Health Founders Seeking Pre-Seed and Seed Raises

Validate Your Idea with Data

Before you approach investors, ensure that your concept is backed by data that demonstrates a clear need for your solution and its potential impact on the market.

Build a Strong Founding Team

Investors at the Pre-Seed and Seed stages are betting on the team as much as the idea. A well-rounded team with diverse expertise in technology, healthcare, and business development can give investors confidence in your ability to execute on your vision.

Craft a Clear and Compelling Narrative

Your pitch should articulate the problem you’re solving, why your solution is unique, and how it will change the landscape of healthcare. Focus on creating a simple yet compelling narrative that resonates with investors. Highlight the scalability of your solution and the broader impact it could have on the healthcare industry.

Leverage Non-Dilutive Funding

Explore grants, accelerators, and competitions that offer non-dilutive funding options. Non-dilutive funding allows you to build early traction without giving away too much equity too early in the process. This is especially important in the early stages when every percentage of ownership matters for future funding rounds.

Develop a Prototype or Minimum Viable Product (MVP)

Having a working prototype or MVP can significantly bolster your pitch. It demonstrates that you’ve moved beyond the idea stage and are actively working towards bringing a market-ready product to life. In the digital health space, where technology and user experience are crucial, having an MVP can set you apart from competitors.

Establish a Foundation of Compliance

In the highly regulated healthcare industry, investors know that compliance can’t just be an afterthought; it should be a critical component of your business strategy from the outset. Establishing a strong compliance framework early on protects your company from legal risks and builds trust with investors, partners, and customers.

Legal and Regulatory Support for Seed and Pre-Seed Digital Health Startups 

The right legal and regulatory support can streamline the fundraising process at any stage and position digital health companies for success. By bringing on an experienced healthcare innovation lawyer at this stage, you can ensure your startup is prepared to answer investor questions and build a firm foundation for future growth. At Nixon Gwilt Law, we frequently partner with seed and pre-seed stage companies to provide support for:

• Legal Entity Formation and Structuring: We’ll guide you through choosing the right legal structure for your startup, whether it’s a straightforward Delaware C-Corp or a complex MSO-Friendly PC structure. We’ll also prepare supporting documents such as Shareholders Agreements and Bylaws.

• Investment Documents: The terms set forth in your investment documents with funders can have lasting impacts on your control over the company, your equity stake, and your ability to raise future funding rounds. And a well-organized and accurate cap table is essential for both internal management and external presentations to potential investors. We’ll help you avoid common pitfalls and set your company up for long-term success.

• Non-Dilutive Funding Guidance: We can help you apply for non-dilutive funding opportunities, such as grants and accelerator programs, ensuring that you maximize your funding options without giving away equity.

• Regulatory Compliance: Navigating healthcare regulations can be daunting, especially for early-stage startups. Our team will make sure you have the right core documents in place and provide guidance on HIPAA compliance, FDA regulations, CMS reimbursement opportunities, and fraud and abuse implications, helping you avoid compliance pitfalls.

• Equity Incentive Plans: Attracting and retaining top talent is critical as your company scales. We can help design and implement equity incentive plans, including stock options and restricted stock incentive grants, ensuring they are structured to benefit both the company and its employees while complying with legal requirements.

• Intellectual Property Strategy: A robust IP strategy is important for protecting your innovations. We’ll assist in securing trademarks and ensuring that your key assets are protected from the outset.

Tips for Digital Health Founders Seeking Series A or Series B Raises 

Show Traction and Product-Market Fit

By the time you reach Series A, investors often expect to see more than just a good idea—they want proof that your product or service has traction in the market. This can be demonstrated through user growth, partnerships, revenue, or other key performance indicators (KPIs) that show your product-market fit. 

Build Strategic Partnerships 

Establishing partnerships with healthcare providers, payers, or other stakeholders can be a strong signal to investors that your business model is viable. Strategic partnerships not only validate your business but can also provide additional resources and opportunities for growth. 

Strengthen Regulatory Compliance in Preparation for Diligence

As your company grows, so does the importance of regulatory compliance. Consider undertaking a compliance assessment to identify and close any gaps.  This will demonstrate to investors your commitment to compliance and help smooth the due diligence process. Key areas to focus on include:

• HIPAA Compliance: Ensure that all patient information is handled in accordance with the Health Insurance Portability and Accountability Act (HIPAA). This includes secure data storage, access controls, and breach notification procedures.

• Anti-Kickback Statute (AKS): Outline how your business avoids unlawful inducements that could influence the referral of federal healthcare program business. Compliance with AKS is critical to prevent legal penalties and maintain ethical standards.

• Stark Law: Address how your company navigates the self-referral prohibition rules under Stark Law. Ensure that your financial relationships with physicians are structured to comply with these regulations.

Hone Your Financial Modeling

Investors at the Series A and B stages will closely scrutinize your financials. It’s important to have a detailed financial model that includes growth projections, cost structures, and revenue streams. Be prepared to discuss how much capital you need and how it will be allocated to drive the company to the next milestone.

Legal and Regulatory Support for Series A and B Digital Health Companies 

As you move into the Series A and B stages, the stakes get higher, and so do the legal complexities. Nixon Gwilt Law can provide the expertise you need to navigate these challenges, with:

• Due Diligence Preparation: Investors in Series A and B rounds will conduct thorough due diligence. Ensure that your legal, financial, and operational documents are organized and up to date. We’ll help you prepare for the process by organizing and reviewing all necessary documents, from corporate records to IP assignments.

• Term Sheet Negotiation: Our attorneys will work with you to negotiate- term sheets that are favorable to your business. We’ll ensure that the terms of your deal align with your long-term goals, including critical provisions such as board composition, anti-dilution provisions, liquidation preferences, and investor rights. 

• Regulatory Strategy: As your company grows, compliance becomes more complex. We’ll help you develop and refine your regulatory strategy across the board, from FDA to HIPAA to CMS and more.

• Strategic Partnership Agreements: We draft and negotiate partnership agreements that protect your interests and foster mutually beneficial (and compliant!) relationships with healthcare providers, payers, and other key stakeholders.

Tips for Founders Seeking Raises for Series C and Beyond

Showcase Proven Scalability

By Series C, investors are looking for companies that have proven they can scale effectively. Highlight how you’ve successfully expanded your operations, entered new markets, or grown your product line. Demonstrate that your business model is sustainable and capable of supporting rapid growth.

Diversify Revenue Streams

 Having multiple revenue streams is a strong indicator of a mature and resilient business. Show investors how you’ve diversified your offerings—whether through new products, services, or partnerships—and how this diversification supports long-term growth.

Focus on Profitability

While early-stage rounds may prioritize growth over profitability, Series C and beyond require a clear path to profitability. Investors want to see that your company can scale while maintaining or increasing profitability. Be prepared to discuss your strategy for achieving and maintaining profitability.

Consider Strategic Acquisitions

At this stage, strategic acquisitions can be a powerful tool for fueling growth or entering new markets. Outline any plans for acquiring complementary businesses, technologies, or talent, and how these acquisitions will accelerate your growth.

Prepare for an Exit Strategy

Investors in later rounds are often interested in your exit strategy, whether through an IPO, acquisition, or another avenue. Start preparing for this possibility by ensuring your financials are audit-ready, optimizing your corporate structure, and building relationships with potential acquirers or investment banks.

Legal and Regulatory Support for Series C and Beyond

 When you reach the later stages of fundraising, the complexity of the legal landscape increases significantly. We’re here to support you through this critical phase:

• Exit Strategy Planning: Whether you’re considering an IPO, acquisition, or another exit strategy, we can help you prepare. Our team will ensure that your financials, corporate structure, and legal documentation are in top shape, positioning you for a successful exit.

• Mergers and Acquisitions (M&A): If strategic acquisitions are part of your growth strategy, we’ll provide guidance on identifying potential targets, conducting due diligence, and negotiating acquisition terms. We’ll ensure that any deals are structured to maximize value and minimize risk.

• Global Expansion Strategy: If you’re looking to expand internationally, we can help navigate the legal complexities of entering new markets. This includes compliance with local laws, establishing foreign entities, and drafting international contracts.

• Corporate Governance and Compliance: As your company scales, maintaining strong corporate governance and compliance is essential. We’ll work with you to establish a robust governance framework, draft governance policies, and ensure compliance with all relevant regulations.

Take Action Today to Prepare for Future Fundraising Success

Fundraising is a pivotal journey for any digital health or health tech startup, with each stage presenting its own set of challenges and opportunities. From laying the foundational groundwork in the Pre-Seed and Seed stages to demonstrating scalability and preparing for potential exits in later rounds, your approach to fundraising can shape the future of your business.

At Nixon Gwilt Law, we understand that navigating the complex landscape of healthcare regulation, investor relations, and business growth requires not only strategic vision but also expert legal support. Our team is dedicated to partnering with you at every step of your fundraising journey, ensuring that your legal foundations are solid, your compliance is airtight, and your business is positioned for long-term success.

Whether you’re just starting out or preparing for a significant growth round, we’re here to help you achieve your goals and turn your vision into reality. Please contact us here to learn more.