E642 | Lucanus Polagnoli & Stephanie Urbanski, Calm/ Storm: Digital Health, Not Hype - Building, Backing & Staying Calm Through the Cycle

0:00Hey folks, welcome back to another UBC episode. There I'm thrilled to be joined by Lucanus Polagnoli and Stephanie Obansky from CalmStorm Ventures. We just spoke about the pronunciation of Lughannes' name, which is why I went overboard on my Italian accent here. Lughannes is the founding partner and the driving strategic force behind CalmStorm. And Stephanie, who began as a supporting partner, now serves as managing director and is the operational backbone of the firm. Together, we're going to unpack not just the news, the closing of Fund 2, but also the story, their values, and how they work with founders in the stormy reality of early stage health tech in Welcome to the podcast, guys.

0:37Thank you very much for having us. Thank you.

0:43Tear down this wall. It's more than just an alliance. This is a union of values. Let's start acting. This show is not investment advice, and the hosts of this episode may be invested in the funds and companies featured. Let's start with the news after all. You've just closed Fund 2. Congrats. What's new this time around? What has it been like to grow the firm from Fund 1 to Fund 2? Yeah, thank you. So I think with Fund 2, we are really actually doubling down on our core strategy. We are backing purpose-driven founders who are changing our life, health, and well-being for the better. We keep focusing on digital health, what we have always been doing.

1:31And for us, digital health really is software-only solutions. We don't do molecules. We don't do hardware. We invest in super early stage, also known use there, which is pre-seed and seed for us. Our initial ticket size is around 400 to 500K. And yeah, our general approach is still investing together with the lead investor. but what's new is we are now also prepared to actually co-lead if or when conviction is high I can just summarize it in a way like it's same same but different same stage same sector same geo the size is a little bit different a little bit bigger so more firepower and and that's why we we are able to you know increase our ownership that's a little bit different, so the strategy, but we were going to talk about that later on.

2:29And of course the team, which is a big change because if you start as a SOLID GP at the beginning of first one, and then you evolve and over the years, not only Stephanie has joined us, but also Johannes and Evadrina. So in the end, I think we're doubling down on what works best and we're tweaking the fund model slightly. You have behind you a bunch of people. Let's talk about that for a second here. You've got an awesome venture partner group behind the firm as well as LPs. Could you talk a bit about that? Because that's something that's always drawn me to your fund. So the idea of the supporting partners was, in the end, my experience at the firm where I've worked before with venture partners.

3:22Because venture partners, you know, they are supposed to bring us deals and, you know, do the sourcing for us. And it was a very transactional way and not very supportive of the companies itself.

3:41And then most of our investors are actually entrepreneurs. and they are supporting. So this is kind of then a mix of LPs and venture partners, limited partners and venture partners. And so I came up with the idea to call them supporting partners. Yeah, today we have more than 60 supporting partners now. And it's just great to have this community because it's a super support system for our founders. Whenever they just, you know, hit the wall, might be in, you know, regulatory fundraising, hiring, we have someone in our community that can help, that can actually help our founders. And I think that's a bit, that's a secret sauce we have, this founder-to-founder knowledge that is powered through the community, coming from the community.

4:30So it's really not us being the experts, helping our founders, but it's the community, the community, the platform that we are building, that enables our founders to stay calm during their scaling storms. Yeah, I do like the narrative around the name. Let's get into your narrative a bit, but let's start with what was missing in the European health tech funding landscape. I'd love to understand kind of why did you start ComStorm in the beginning and maybe also a bit about where it fits in the market today. So you mean from the very start of ComStorm? Yeah, both from the start and where it fits today.

5:10So I have to start long before Constorm, I think, in order to put that in perspective. So when I came into the venture scene, the venture industry, back in 2012, I started with a guy called Hansi Hansmann. He's here behind us, somewhere here. And I started, you know, helping him with his portfolio in certain companies. And around me and those founders were very enormously talented people, but there were also a few digital health founders. You know, the founders of Runtastic that later sold to Adidas, the founders of MySugar that sold to Roche. And this kind of community also gave me the first insight into what it is like to build something that is not only meaningful in terms of financial return, but also impact.

6:01And then later on, when I came to Speedinvest, became a partner and wanted to, you know, get the health team there, I found that while there was a lot of, you know, interest on the one hand, the industry was still very slow. And it was overshadowed by sectors like FinTech and others. So in the years 2016, 17, 18, it was really, I think, very hard for digital health founders to build, to get funding, and also for us as investors to put our money there because we didn't find any follow-on investors. But then early 2019, when U.S. startups like Siemens & Herz, you know, made their big series C, I think with 100 million or Babylon even got like 500 million.

6:53At that time, we thought the wave somehow, the funding wave for digital health will reach European shores and that will hit Europe at some point. And while it's been a mess, they didn't believe it that much, but Hansi really believed that that he's also coming from pharma. He made his wealth there. And so we decided to prepare for that wave to hit. And then all night, 2019, we prepared. And on the 5th of February, 2020, we launched the fund. And the vision was to concentrate on super early stage, purpose-driven founders, building solutions to increase our health and life for the better. And then just, you know, two or three weeks later, the pandemic hit and it was perfect timing.

7:46But we actually thought about it long before the pandemic. So we didn't jump on a train that just arrived. We just waited for the train and the wave didn't come from the US, but was like a tsunami coming from everywhere through the pandemic. So we had the perfect timing. We launched right before the storm, but not by accident, but by design. Clearly, a lot has happened since because we obviously resolved the COVID crisis. a lot of the companies that got back in through COVID turned out to be built on a bit of an understanding of what the world would look like post-COVID. That turned out to not be super true because a lot of things actually just went back to how they were.

8:29So can you talk a bit about whether that is true for digital health and if that mood swing, so to say, has affected your portfolio and the entire investment vertical? I actually don't think that we are back where we are. I think we are not at the hype anymore. That's true, but it's actually good because all the tourist investors are gone. And we are back at the stage where people who are really into that, doing that for a long time, like us, but also others, are talking to founders who are in there for the long term.

9:08And some things have changed that you don't realize so much in detail, but But, you know, we are not back in those former times where you couldn't get a prescription on your phone or electronically where you had to, you know, bring the piece of paper from the doctor across the streets to the pharmacist. So things have changed. Money is flowing into the sector. But I think what is most important, and that is different to before a pandemic, follow-on investors, later stage capital, are investing in our portfolio, but also in other portfolios. And so you actually can do a Series B or Series C in Europe.

9:55And I think that was needed. And it's there. It's not as hyped anymore, but I think it's a good place to be. Can you talk a bit about the whole longevity space and how that fits into with you? Because that's, of course, I guess, to some extent adjacent to what you do. But on the other hand, I imagine there's also a bunch of digital solutions that ride the wave of interest in longevity. Yeah, so that's definitely a trend we are seeing. And I do think that's a market change kind of also accelerated by the COVID pandemic, probably that there is much more focus now on preventative health. So our health care system in Europe is it still is was so used to, you know, caring for sick people, therapy for sick people.

10:52And that has that has shifted also because, you know, people are realizing that preventative health is, you know, important. and they are willing to pay out of pocket for these things. And that's definitely a trend we are seeing. Longevity, preventative care, a lot of deal flow that's coming in this sector. We've also seen just recently, it's a lot of related with AI. There is so much data out there. And now with AI, we finally can, you know, get the insights out of all this data. So I think that's a trend that we're definitely seeing. We've just recently, there has been a study that in a second quarter, there has been 70 % of all investments that went into healthcare are related to AI.

11:53and that, you know, all the preventative longevity deals we are seeing, there is an AI component to it and there's a lot going on in the market. Let me ask you one question, Stephanie, just for everyone to understand you better before we then go further into thesis and differentiation, because I obviously want to dive into what you just mentioned with the AI wave and how that's impacting digital health. But if we just get some words on your background and your role in the team, I'd love to understand because you guys have a pretty cool split, I think, between the two of you. Yeah. So my background is I'm an operator turned VC.

12:38I've worked in startups for over a decade. First, I worked in a deep tech startup actually in San Francisco. And then I joined a digital health startup in London. So my heart and passion is really in, you know, building and scaling products and, you know, bringing people together. So that's also where my operator background is coming in. So I tend to focus more on the operational side of things, which balances nicely, Lucano's strategic view and strategic thinking. and I think we briefly mentioned but what I'm really trying to do within CalmStorm is I'm trying to turn the resources we have and the network we have into additional tangible value for our founders but also for our LPs so it's really moving beyond just capital that we can provide and we are really doing a lot of partnerships within CalmStorm we offer the founders our resources, we have the community and that's really what I'm trying to bring together from a you know strategic execution but also community building perspective.

13:51Yeah and apart from that it's obviously a lot of regulatory compliance finance marketing work so you know everything else that has to be done in a fund. A lot of people underestimate that we are real fund right? We are an Oybeka fund in Europe, so we have to do all things that also the big funds do. But it's very clear, Stephanie more or less steers the ship through all the stormy waters that we have to go through. And I'll make sure that we have the right tactics and the right navigation to find the right spot where to sail. I don't think there are many emerging managers that have not been surprised with the operation complexity of running a venture firm, especially when you also layer on a bit of a community model, because as powerful as the community is, it's also constantly making sure that you know where people can add value and that the value actually is being delivered and the founders know how to engage with the community and so on.

14:59So it's not a simple thing, but it's a very powerful thing when it works. Yeah, and I think then we have this special layer of co-investments. So we have more than 110 LPs in our group. And we did, I don't know how many, 120 transactions now with them, co-investments where they invested with us. And so that adds another layer of complexity. But I think it is very true to our offering. It is what CalmStorm is about. And that's why I think we don't complain about that. We just try to make it, you know, sail smoothly and the operations work well. Let me go to the vertical deep dive. So to say you just described it well, where we come from and kind of where we sit today in the cycle.

15:48I'd love to understand or describe clearly to the audience, why is it that it makes sense that we have a digital health only fund? Why not do it as part of a bigger thesis? The word only is, I think, is already the answer. Most people see that industry as only a niche or only one industry. but I actually believe that health is the biggest industry we have because it's us. And so the older people get that I talk to, the more they understand how much value and importance health has. And then obviously you can ask from the financial point of view, not only the philosophy point of view, is there money to be made?

16:40And yes, there is. But it's sometimes hidden and then you have to better dig in deeper to see what's going on in the market. But digital health and well-being means nothing else than software for our life, the prevention to live a good life and not get sick. And then the software that helps everyone to, if we get sick older or have some chronic problems, we have support to tackle that. And so while we narrow our investment view on one industry, yes, true, we go super broad within that. And I think that can also deliver the biggest impact for humans. If I invest in fintech, it can impact the balance sheet.

17:32If I invest in a digital health company, it can actually save lives. And that doesn't mean that we don't do fintech. We do fintech for health. We do marketplaces for health. We do AI for health, obviously. So while we call ourselves a health tech fund, a health tech focused fund, a specialist fund, a vertical fund, I think that vertical is quite big. Tell me a little bit about the importance of also splitting out digital from the rest, so to say. that's at least something that I from a LP perspective like because sometimes I can feel that you can have a vertical that is seemingly very very clearly delineated from other things but then the underlying mechanics of building firms in that vertical can vary very widely so if you do health and then you also do some of the more bio heavy stuff or the more hardware heavy stuff, that's completely different business from running a purely digital business.

18:35And that's why I feel like, well, okay, it's still within the sector called health, but it's definitely two very different value ads that a founder would be looking for. And for that reason, I must say, while digital health gets, so to say, a very small vertical, it's definitely something that allows you as a specialized manager to be very clear about your value ad and how the sector works. we have to return our capital to our investors that's that that's that's why we are there and um while we deploy the capital while it's in the market we are very happy to support companies to to to you know make a real impact and we have to make sure that we we do that in a way where the capital that we can provide works best adds that creates the most value and because we We are a small fund and we do small tickets in a super early stage.

19:33Investing in a molecule that takes 15 years and then gets sold once it's approved is very hard for us. Same is true for hardware. I mean, Stephanie can talk about hardware because she has been in a digital health hardware startup. It takes forever, costs a lot of capital and all these capital intensive companies. There are investors who can do that, but we are not the right one for that. So you have to know what you can do and what you shouldn't do. And that's why we focus on small capital expenditure, small teams that can build software that have a huge impact with those small funding rounds as well that we like to see.

20:21Yes, it's true in Europe, most companies are underfunded. That's also a problem, but it's underfunded in a different dimension. It's underfunded at the beginning. You know, they get not enough capital and start to, you know, test their hypothesis well enough. But then we are rather investing in companies that don't need hundreds of millions in order to deliver their products or services. What do you think? I agree. And, you know, we want to take a risk, want to be early. We're investing very early and we are willing to invest, you know, when you have the vision, you have the purpose without a product.

21:02And I think you can do that when you invest in software, you know, because you can hit the ground running, create an MVP, iterate fast, which is very different with hardware. And that just doesn't fit our thesis and what we want to see. We want to invest early, but get to a point where we can see a change and see something happening quickly. Let me try and understand another thing. Regulatory tends to be some of the things that are difficult to navigate in venture. But I imagine that for you, the complexity of the regulatory landscape and also the understanding of where the opportunities lie. I imagine, while it's always a barrier, so to say, to get in, if you know how to navigate it, it can actually be quite the competitive edge for you as a firm.

21:53First, I have to make clear that we do not only invest in regulatory businesses. We also invest in non-regulated businesses, in direct-to-consumer apps and all these kind of things. So a large part of our portfolio, although it's called digital health, has nothing to do with the traditional health markets where you need FDA approval or where you build a medical product. But yes, of course, also a large portion is regulated business. And for a lot of people, this is kind of like a Gordon knot that you have no clue how to tie it up. So regulation is also a good thing. As you said, it is protecting you from competition once you've made it.

22:39So I'll give you an example. ThinkSono is a company now, portfolio that I met first when I was speedy medicine in 2018. And they had the idea to build a software to help nurses to do what normally only radiologists are able to do to detect the thrombosis in your leg, deep vein thrombosis. It's called DBT. and they had to go through clinical trials and studies and test it and make sure that they can tell everyone their software works as well as the neurologist hits the gold standard. And now, what, that's eight years later, they got the proof and they are more or less the market leader for automated BT scans.

23:22Is that very fast? No, it's probably not as fast as in other sectors. That's true. But if you have the grit and the patience and the willingness to stay focused and not jump the ship when the first storm hits, also for the investors, I think that's a really good thing to invest in. Because what we are looking at, if you think about the pitch deck we are looking at, we are looking at the team side, we're looking at market and problem side, and we're looking at the competition side. And this is a clear advantage for someone who made it through regulatory. But as I said before, you need enough cash in order to go through that.

24:01You need enough risk takers. But I always tell my investors, you know, we are doing venture capital. We are in the risky business. If you want to invest in something that has no risk, then go somewhere else. You know? And then also, I think what is very important here in Europe, we are always compared to the U.S. And the standard sentence is US is easy, Europe is complicated or complex. And in health, that's not true because the US market in health is extremely complicated. And so I think the idea everything is easy in the US in that specific case is not true. And that's why also European health companies have that advantage that they can actually build huge businesses just in a few European countries, just because of the size of the market.

24:55Think about just something that, you know, people can relate to. Think about how much you spend at your dentist. Think about how much money is spent in Germany just for dentistry every year. You can build a unicorn just out of dentistry. And so we don't need to go for not every solution. You need to go to the US to make it become an. Let me ask you, because we've got to turn to AI, obviously. I think anyone who has been in touch with the healthcare system can see the value or the potential value there. I think anyone who has gone to the doctor and gotten their sloppy diagnosis have then gone home afterwards and felt like we got more out of chat GPT.

25:39So I'd love to hear your take on this sector. Obviously, on the one hand, the opportunity space, but also where we should be wary and where it's maybe something that's more pie in the sky or at least something that we are quite far away from getting at. When we talk about AI, we need to get rid of all this kind of, you know, buzz and hype and really look into the underlying value. And that is probably very much in health, more helpful than in other industries, right? In health, you have such a vast amount of data and research and new outcomes every day that a typical doctor or let's call that a healthcare professional, no matter whether he works here or there or whether she's in a hospital, is impossible to, you know, be updated with the current knowledge of medication or medical knowledge in the world.

26:49And so you need help. And the question is, how do you get that help? How do you get updated? And yes, we already had these kind of companies like Diagnosia, I invested with Speedinvest years ago, you know, these little companions in your pocket. But AI goes a little bit deeper and can just be your partner that you talk to understand what's going on or what you should do. They can ask for help. So if we look at all the industries, I think actually in health, AI can create the most value out of other industries. I believe that strongly because of the situation of the industry. Do we invest in every pitch deck that says we are an AI company?

27:43Of course not, because everyone now says he's an AI company. And also, I don't think there is a lot of barriers then there. But I just talked to recently, I talked to a founder who in the US, you know, did studies. She studied on dead hearts, like of dead bodies and looked at those hearts and did that for years. and then now puts the software on the top of her research. And so she has an own data set that now the software can play with and you can iterate so much faster than you could in the past. So there is actually models that work very well with this new way of computing. And I believe it will be here to stay.

28:33and once we get rid of all the bus, it will be very helpful. Yeah, and I think that's exactly, there's so much data out there, especially in health and what AI really helps us is this pattern recognition and so many work in silos and with AI, you just have the opportunity to take another doctor's and other researcher's data and really combine all the information and quickly get results out of it. And even you and me can do that. So, of course, it will be a game changer in the health industry with so much data available. Can you talk a bit about, and I'm sure that there's a lot of people in the audience that are really curious about this, because we can all see the potential kind of as you lay out here.

29:24The potential is enormous. But what will it look like in five years? Will we be more or less the same place that we are today? Or will adoption happen quickly enough that in five years there's actually a meaningful difference in the tools that are used at a hospital? Because to me, it feels like in education and in health, in a lot around accounting as well, that the private companies will move much quicker than our public institutions. And for that reason, I can imagine a wave of privatization happen because you just can build so much quicker from a blank slate. I don't want to get too political.

30:18In some cases, I'm actually very much in favor of privatization. In some, I'm actually not. So I hate the incentives of privatization, but I can just see that we're at a place where disruption can truly happen. That's my analysis, that there's so much disruptive potential here. And yes, the incentives of privatization are maybe a bit dangerous. you could argue with a left-wing perspective. I definitely buy into that. On the other hand, like a slightly off incentive, if that enables a 10x or 100x improvement, well, maybe it's worth biting that apple. I think we can... So the health industry traditionally was an institute, that there were institutions to help the people.

31:10If you think about the first hospital on earth was the clinic in Vienna in 17 something, the first general hospital that was built in order to serve the people. And it came from top down and it attracted, you know, the, at that time, most sophisticated doctors. And it was clearly to approve the society. And there was not a private profit interest in the overall structure. But what you had is you had obviously these inventions and they were always driven by private individuals, entrepreneurs who invented something. I mean, Vienna or Austria has a long tradition with famous inventions in the medical field.

32:07In order to not discuss whether it is better to have a private healthcare system or a public healthcare system or what we normally have in Europe, a combination of a standard health insurance plus then electives that you can have. And sometimes you have to choose them and sometimes you don't. In the end, I think it's about the pull or the push. So does push down to the people and this is how we do care for diabetes? Or is there a pull from the people that now are so much more informed