INSIGHTS AND UPDATES ON LAKESTAR BRIEFING · 2020. 8. 28. · Eva-Maria Meijnen. ‘We received the Term Sheet from Ping An on 24th March, two days after the all-time peak of the

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OneFootball is an app which provides the most relevant and com-prehensive content on the sport globally. It is a platform that aggregates content, attracting more than 40 million users who return to the app about 45 times a month for an average of three minutes per session. It also screens top matches on a pay-by-view basis, an affordable model for the younger fans who make up 75 per cent of its users. Page 12

The COVID-19 pandemic has accelerated developments in the healthcare industry, one of the world’s largest markets which has been traditionally slow to adopt the technological and digital innovations that have revolutionised other sectors. Over the past 10 years, investors have deployed more than USD40 billion into healthtech to drive change in the healthcare ecosys-tem which has fallen behind as a result of complex incentives and structural roadblocks.

PlusDental is bringing affordable access to modern dentistry includ-ing solutions such as crowns, implants and veneers by digitising the processes for its highly qual-ified local dentist partners across Europe. Page 4

Impala is a London-based startup that has created a common book-ing infrastructure for the highly fragmented hotel industry which simplifies booking rooms and services for customers. Page 18

WelcomeIn this latest issue of Briefing, we introduce two of Lakestar’s investment theses: a deep dive by Oliver Heimes and Akis Bratsos into the increasing pressure on the healthcare industry to invest in digital modernisation; and Stephen Nundy’s analysis of Application Programming Interfaces (APIs) which are opening new pathways to forge profitable partnerships and monetise data for tech innovation and growth. We also interview three of the remarkable entrepreneurs behind our portfolio companies in hotel bookings, affordable digital dentistry and football digital rights.

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Welcome to the ninth issue of Lakestar Briefing which introduces three new portfolio companies – Impala, PlusDental and OneFootball. For two of them, our investments are recent and we present their interesting business models and their approach to COVID-19. With OneFootball, we can see how it has continued to attract increasing numbers of loyal customers online despite the absence of matches, introducing creative distribution models.

We have also used COVID-19 to reflect on our own team efforts, making internal changes to focus on key theses that we see as future differentiators and increasing our work in key geographies and ecosystems. For example, this issue includes a deep dive into the healthcare industry and the growth of healthtech investments that are driving changes in it. It also analyses technology platforms incorporating APIs which transform businesses by embedding other platforms’ software into their operations.

These changes have already resulted in the closure of competitive deals and increased presence in core markets. In future issues, we will continue to share with you the insights we have discovered in such markets.

The Lakestar Team

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D I G I TA L I S A T I O N B R I N G S A F F O R D A B L E A C C E S S T O M O D E R N D E N T I S T R Y

Digitalised dentistry first began to be used in dental surgeries when digital radiography was introduced in the 1980s to replace the use of X-ray film to scan teeth in preparation for treatment with computer images. The applications have been steadily increased to other procedures such as 3D printing for implants and other dental solutions such as crowns and veneers which is replacing more traditional manufacturing techniques. However many digital dentistry treatments can be expensive and beyond the means of average patients, so a Berlin-based start-up has launched a fully digitalised healthtech company whose mission is to provide access to high-quality and innovative dentistry for the general public.

PlusDental, founded in 2017 and formerly known as Sunshine Smile, specialises in digital dentistry and aesthetic orthodontic treatments. It achieves first-class medical treatment results through direct cooperation with more than 70 highly qualified local dentist part-ners, using a platform that digitalises treatment processes as far as possible – from appointment to treat-ment plan, and from follow-up checks to billing. In May 2020, it raised EUR32 million from international investors in a Series C funding round to develop the proprietary digital dentistry platform and continue German and European business expansion.

The company was founded by a team of three managing directors, all of whom had previous entrepreneurial experience: Dr Peter Baumgart, Lukas Brosseder and David Khalil. Peter was a former McKinsey manage-ment consultant; Lukas and David had successfully floated the dating company they had founded on the New York Stock Exchange where David Khalil has remained as Chairman of the Board after PlusDental took off. Shortly after, Eva-Maria Meijnen, a senior executive in industrial engineering, joined the manage-ment team in 2019.

‘I had always wanted to make an impact by developing a company,’ says Eva-Maria, ‘And when I was approached by PlusDental in 2018, I became convinced that digital technology could enormously improve the dental healthcare system. I could also see

that the cost of dental technology was too high and needed to become accessible to the vast majority of people. So I moved from aero engineering to a health-care start-up where I became Managing Director.’

PlusDental currently works in two main areas of dentistry. Its original expertise was in digital teeth straightening, using clear aligners invented in the US by Invisalign. New customers first visit one of its partner dental practices for a full check-up on their dental


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health and to have their oral cavities scanned. The scans are sent online to the company’s platform in Berlin where dental technicians manufacture the aligners which are transparent, and come in removable sets that are worn for about two weeks each to gradually straighten the customer’s teeth.

The second area of PlusDental’s digital dentistry focuses on dental solutions such as crowns, implants and veneers which use much of the same technology as teeth straightening. In effect, the company is adding additional products to its portfolio which it hopes will take out costs and make its fully digitalised processes more efficient. The savings can in practice make ortho-dontic treatment in Germany and other expensive dental treatment countries more competitive. Costs are so high in such countries that medical travel agencies organise flights to countries such as Turkey where the costs of dental treatments are much lower.

The digitalisation process plays an essential role in what Eva-Maria Meijnen describes as the democrati-sation of the dental products – making them more

affordable for customers. ‘What made a big impression on me was that when I looked at the margins for den-tistry and orthodontics, they were at least 30 per cent,’ she says. ‘Less than half this amount was the time spent with the patients, with the rest being administration.

‘If there was more competition, the margins would come down, but in Europe there is no motivation to cut costs. However digitalisation can substantially reduce the margins with economies of scale, because the involve-ment of our partner dentists largely ends when they send a treatment plan to the patient who can approve it and choose between different payment options. The treat-ment can then begin under the control of PlusDental’s platform in Berlin, with progress monitored online by a companion app which we have devised.

‘The app reminds patients about what they need to do during the treatment, such as to change the align-ers regularly for teeth straightening, and asks them how the process is working for them. All of this is stored on our platform and every two months the patient is asked to upload photos of the treatment’s progress which are

shared with the partner dentist for review. Usually, they show that everything is going to plan but if not, the dentist can interact with the platform to recommend measures such as extending the treatment, going back to earlier stages or even changing the plan.’

The vast majority of PlusDental patients require only one visit to the dentist, she adds, with the rest done online. The average length of treatment is six months, up to a maximum of 12 months – cases that would take more than 12 months are judged to be too complex. More pictures are uploaded when the treatment ends and patients are asked whether they are satisfied with the results. Satisfaction is guaranteed, and the results can be refined free of charge if problems arise.

The average age of patients is between 18 and 40, with female patients accounting for 70 per cent of the total and 30 per cent being male. There are three levels of pricing for simple, medium and complex cases which are defined after the treatment has been completely planned out. These prices are defined by the duration of the treatment and the need for additional procedures when teeth are overcrowded and must be polished before treatment.

PlusDental already has a strong team of more than 200 people, including a large number of dentists, ortho-dontists, master dental technicians and dental technicians. It has more than 70 partner dentists in private practice in Germany, Austria, Switzerland, Great Britain and Spain who use the digital dentistry platform developed in its Berlin laboratory, and they can deal with up to up to 2,000 scheduled patient appointments weekly.

These numbers are likely to grow substantially following PlusDental’s May 2020 Series C funding round which was led by the Hong Kong-based Ping An Global Voyager Fund. The billion US dollar fund was

‘ PlusDental already has a strong team of more than 200 people, including a large number of dentists, orthodontists, master dental technicians and dental technicians’


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established in 2017 by China’s Ping An, one of the larg-est financial services companies in the world which is the world leader in telemedicine and operates the ‘Ping An Good Doctor’ platform which makes over 700,000 digital doctor visits every day.

The Ping An Global Voyager Fund has invested approximately USD300 million in growth-stage fintech and healthtech enterprises across Europe, Asia and North America. In addition to financial support for PlusDental, it offers access to in-depth knowledge of digital medicine. Lakestar and HV Holtzbrinck Ventures also joined in the Series C funding round, having previ-ously invested in the company.

‘One complication of the fund-raising was that it had to be closed during the COVID-19 outbreak,’ says

Eva-Maria Meijnen. ‘We received the Term Sheet from Ping An on 24th March, two days after the all-time peak of the coronavirus on the stock market. We feared that it would be postponed or even cancelled completely but all the investors stuck with it because they believed in our vision and we had strongly executed the prepara-tions ahead of the COVID-19 crisis.’

The additional capital will be used to accelerate growth, drive further international expansion in Europe and broaden its range of dental treatment, particularly to fill gaps in the company’s orthodontics products. PlusDental will also invest in substantial advances of its digital dentistry platform and widen its extensive network of partner dentists.

medical institutions, and also for our partner dentists. Within days we had extended the use of our 3D printing equipment from producing aligners during the day to making protective gear for medical institutions and health professionals during evenings and weekends.

We distributed more than 7,000 face-shields free to those in need, produced by team members who had volunteered for unpaid night and weekend shifts, with material and shipping costs sponsored by our investors. Many recipients wanted to return the favour, and we pointed them towards the CLEFT foundation that spon-sors operations on children with cleft lips and palates and which we have supported with 1 per cent of our revenues since our foundation.

Eva-Maria Meijnen

With the rapid development of COVID-19 infection in Italy, we realised that it would be only a matter of days or weeks before there would be a significant impact on our business – including the need to pause our main activities for an unknown period of lockdown.

We worked out a detailed plan, set up a communication system with our employees and sent part of the team into short-term work to reduce costs without losing a single team member. Most of the teams outside our direct operations continued working full-time on our products, engineering and data processing activities, or on our customer services.

We also thought about how we could use our assets – our great people and our high-end technology – to help overcome the crisis. The shortage of protective gear was a huge problem for doctors and nurses in

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C H I E F T E C H N O L O G Y O F F I C E R A N D PA R T N E R

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Increasing numbers of technology platforms are now incorporating APIs – Application Programming Interfaces which enable those businesses to embed other platforms within their own apps or websites. These APIs are behind many of the digital transformations that are opening new pathways to forge profitable partnerships and monetise data for tech innovation and growth.

APIs are transforming businesses by embedding the software capabilities of other platformsinto their operations

APIs move data from one software application to another to support business goals and while they have been around for a while, entrepreneurs are rapidly discovering many new applications. Today they feature in many of the investments now supported by Lakestar in sectors such as finance, travel, transportation and data processing. They bring benefits by acting as the storefronts for other businesses that work faster than existing applications, reducing costs and offering con-sumers more choice.

Lakestar has recently led a EUR12 million Series A funding round for Yapily, a London-based start-up which is driving open banking adoption by organisations across Europe. Open banking is an initiative of the European Union’s second Payment Services Directive (PSD2) that aims to boost competition in banking, credit cards and payments. It requires retail banks to give third parties open access to financial data and payment infra-structure if their customers give their approval – it should be noted that those customers include business accounts and not just consumer banking.

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With 27 European countries having already gone live with PSD2, Yapily now connects thousands of banks to others wishing to access that information through a single secure open API. It takes care of the complexities of navigating each banking platform one by one imple-menting their technical specification that includes likely different naming conventions for their services and dif-fering data formats. It also ensures that the open banking they implement meets the regulatory frameworks and technical requirements of participating countries.

Another start-up led by Lakestar is Impala which makes it possible for consumers to get easy access to book-ings in the fragmented hotel industry that mostly operates using their own data and property management systems. Page 18 of this edition of Lakestar Briefing has an inter-view with an Impala co-founder Ben Stephenson, giving a fuller account of how it creates a common infrastructure for hotel booking systems, essentially an API on top of this infrastructural complexity that greatly simplifies the pro-cess for anyone requiring access at scale. This is proving attractive to hotel managers too because it offers consum-ers more options to interact with and reduces costs.

Other recent Lakestar investments that incorpo-rate APIs have included two travel and tourism search engines. One is HomeToGo, the world’s largest operator of vacation rental engines; the other is GetYourGuide which markets travel experiences that are the fastest growing segment of the leisure tourism market. Each of these aggregates hundreds of businesses that own holiday homes or organise travel experiences to offer consumers and tourists a greater range of choices on their holidays.

The growth of what has become known as the API Economy also offers many less visible benefits to businesses, often by integrating different parts of a com-pany’s operations. For example, Uber drivers have equipment that generates navigation instructions for passenger journeys on Google Maps using its API. For retailers, APIs can create online sales capabilities by integrating inventory, payment and security tools.

Broadcast media such as Netflix use APIs to provide services on the different devices their customers use, which include televisions, gaming devices and mobile platforms. Companies selling tickets online for films, plays, concerts or operas can verify credit card information with an API. And companies communicat-ing business to business can connect to cloud platforms and the Internet of Things using APIs.

There are now billions of APIs around the world, which reflects the willingness of developers to do the hard work of assembling them from multiple sources. Yapily and Impala are two examples of founders who believe they can create value by managing the complex ‘plumbing tasks’ which will create the functionality and

most importantly, scale, for new users to obtain the information they need in a standard format they can understand.

However, if someone has already done the plumbing to create open banking or hotel booking APIs, are there opportunities for competitors to build another one? After all, if an entrepreneur has already aggregated all the data, they have created something like the Yellow Pages for open banking or hotel bookings and it is not clear how much better a second, third or fourth aggre-gation could be. Nonetheless, there is a race going on at the next level up with API management platforms such as Mulesoft and Apigee which help organisations con-fronting many different APIs to understand which are performing and working well.

Every year, the amount of data in the world is more than doubling and so is the number of APIs. This creates a need for management tools to search for the best quality APIs and find out which ones they should use. With companies becoming software businesses, retail banks are becoming technology companies first and banks second, thanks to APIs such as Yapily: their core functions are processing account data and making payment transactions, with all other services built on top. This is allowing some business models to be turned upside-down – the recent announcement that Amex is partnering with Yapily is an example of a traditional credit card provider becoming a pseudo bank payments provider without taking on deposits.

There are major consequences for many other sectors in the API economy. Insurance, for example, has previously provided services through their websites and brokers. But they can now offer their services using an API which allows customers to buy them without using their websites, talking to brokers or making telephone calls.

In practice, APIs are becoming storefronts for lots of businesses, and other companies will connect through them if they can get quick reliable answers cheaply, rather than just approaching local or national businesses as in the past. Indeed, if APIs are advertised, companies can sell products or services through them in the same way that they do through Amazon – those APIs will become the market-places of the future.

Lakestar investors will find that increasing num-bers of our investments are in open architectures or open commerce, with APIs becoming the lynchpins of the platform economy. Around these APIs, another industry will grow up to discover them, manage them, control their quality and evaluate their performance. It will also create other companies in the future that live off the API economy, a prospect which is attracting increasing interest from perceptive entrepreneurs.

‘APIs are becoming storefronts for lots of businesses, and other companies will connect through them’

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It is no exaggeration to say that Lucas von Cranach was always destined to play a role in the football business. By his own admission, he is a crazy football fan: ‘Football has always played a big role in my life. I played throughout my whole youth and I never missed a match of my favourite team FC Cologne. I even played for the club in my early days.’

But there was a problem for fans like him: it was very difficult to get access to football data on mobile devices in the pre-smartphone era. As a result, he started an SMS service which gave users the live results of their favourite team they had subscribed to – FC Cologne in his case. However, since Cologne was not a very successful team, the service became relatively expensive for the user: if Cologne lost 0-5, he had to pay for an SMS for every goal. Also, the user experience needed to be improved.

The arrival of smartphones in 2008 brought mobile apps for a range of devices such as Symbian and Blackberry. But using them to distribute football data was complex because an app had to be built for every device. So when the former CEO of Apple for Europe, the Middle East and Africa asked him to create an app for the iPhone, Lucas agreed to do it. Apple was the leading provider of mobile apps at that time and OneFootball was among the first thousand apps in the Apple App Store globally in 2009.

Lucas knew that the distribution of his data ser-vice to fans had to be either via an app or a website. He decided to go for the app, because it is customisable: every user can customise the contents of apps, which isn’t the case with websites.

His second decision was to focus only on foot-ball, not sports in general. Basketball is a completely different sport to handball, tennis, golf or football. Every sport produces different data and requires differ-ent forms of presentation.

His third decision was to go for a platform approach, because in the long run it would be very difficult for publishers of non-exclusive content to com-pete with one focused on exclusive content. With a non-exclusive model, a publisher must create much more


The App that serves football fans with the most relevant and comprehensive content globally

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content which requires hiring many more producers, making it hard to find economies of scale.

So OneFootball was launched as a football-only app, and it was doing quite well – except that it was constantly fighting insolvency in its first five years of existence. Lucas realised that European investors did not understand why spending money to build a platform that aggregated content was essential to grow a user base. ‘They thought that the priority was to generate profits and build a team. But creating platforms is not about generating large revenues: at first, it is about attracting engaged users with the best product and grow the user base. Then, this large user base puts you in the position to monetise the customer via advertising and/or a direct-to-consumer approach.’ Lucas clearly believes that ‘Money always follows the best user experiences.’

‘When I went to the US to raise capital for OneFootball there, I found that US investors would not invest in the company because they did not understand the sport – which they call ‘soccer’ – as well as we do in Europe. So, again, every month I struggled to survive financially, even though we had two million customers using our app on a monthly basis at that time. Companies like Huffington Post, Buzzfeed, Vice and others were on the rise and US investors were attracted by the large number of “customers” these companies were reporting.

‘But in reality they were not real customers, because the companies were distributing their content via social media and were not engaging with them directly. They were followers or subscribers on social media platforms and the big majority were not active. Yet VCs and investors were more focused on these com-panies. OneFootball’s real engaged customer base looked small in comparison with these numbers, which made it very hard to compete for investment.’

EventualIy Lucas met up with Union Square Ventures, a US VC which was one of the first investors in Twitter, Tumbler and FourSquare, and with Earlybird, a European investor which was invested in Wunderlist, EyeEm and others. They understood plat-form businesses that aggregate content and provide great user experiences, knew the value of engaged users, and the need to spend funding to attract and lead them to the product. It took five years to finally complete the Series A and get institutional money on board, even though the user numbers were constantly increasing and the customers were very engaged and loyal to OneFootball.

‘More really good investors came on board,’ says Lucas. ‘Lakestar joined us in 2014, alongside Adidas, Creative Artist Agency, TPG Growth and Philipp Schindler from Google. These

were smart venture capital investors who could help me and help the business. And we went on investing 95 per cent of our resources on attracting impressive numbers of engaged users. Today, we have 44 million active users throughout the whole season. We are the largest platform globally, with very high user engagement numbers: users come back to the app about 45 times a month using it for 3 minutes on average per session.

‘We are building a direct-to-consumer business. Our media platform is completely free, which leads to the engagement of a huge number of users creating the scale needed to pull in advertis-ing dollars. It is about that engaged user base which we need to profile better and not about collecting email addresses as social media does.’


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O N E F O O T B A L L F A C T S

‘The idea has always been to serve football fans with the most relevant and comprehensive content

globally via an app, and only football’


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44 million active users worldwide per season

Draws content from 20,000 different sources

Largest monthly audience is Brazil followed by

Germany, Mexico and Italy

Does not publish user-generated content

Employs 220 people representing no less than 40 nationalities

Reach of over 70 million fans

per month across all

channels, including social media

75 per cent of users below the age of 35

Publishes in 12 languages

globally

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In football, he believes that there are five potential direct-to-consumer revenue streams which could be interesting for building a successful platform that will attract fans to spend their own money in the football eco-system:

– OTT – live streaming of football matches; – Merchandising;– Ticketing;– Betting;– Travelling.

Depending on the country, serious football fans spend between EUR1,000 and EUR3,000 per season on their football clubs. OneFootball does not take betting as a revenue stream given the legal issues, and does not sell physical goods which have to be man-ufactured and distributed. But it has decided to focus on OTT which is a huge market: digital rights bring in EUR50 billion to EUR75 billion per season, and are very valuable when distributed by a business such as OneFootball that knows its customers’ inter-ests, their favourite clubs and their favourite national teams.

‘We have more than 10 million active monthly users and we decided to ramp up our OTT strategy. We brought in Franz Koch, former CEO of German sportswear giant Puma, as Chief Operating Officer, and Patrick Fischer, previously CEO of leading German broadcaster Sport1 Media, as Chief Business Officer. They are leading

a team in charge of our overall business strategy, whose mission it is to build a media platform driving user engagement and customer loyalty, with the OTT business on top.

‘We have managed to convince some rights-holders such as Sky Deutschland, DAZN and Eleven Sports to give us access to their rights so we can make their coverage available in particular markets on a pay-per-view basis. We have also invited some clubs – including the Premier League’s Manchester City and Spain’s Real Madrid – to have a presence on our platform: the clubs’ editorial content is natively embedded in the OneFootball app. On top of that, the original club content is complemented by fan-based blogs which are really popular with die-hard fans.’

Lucas von Cranach sees OneFootball’s future trajectory as a media platform offering aggregated free content organised in a way that engages customers. In fact, it is similar to Twitter, but without user-gen-erated content: only OneFootball is in control of the published content. And, similarly to Spotify, OneFootball democratises the market: younger fans aged below 35, who make up 75 per cent of OneFootball’s user base, have the opportunity, thanks to an affordable pay-per-view model, to see live matches in a flexible and convenient way.

‘We have the largest customer base in football globally, the highest engagement level, a proven model in the platform and the direct-to-consumer OTT business, and an amazing shareholder base. We can truly say that we are disrupting the market. We have become an integral part of the football eco-system.’

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C O - F O U N D E R & C E OI M PA L A

The hotel industry is worth around USD1.6 trillion but with close to 250,000 different owners and a large number of services on offer, it is a highly fragmented market. This means that creating the technology to allow customers to book rooms, meals and other services from a hotel’s website can result in a cumbersome and expensive management system. Hoteliers may find themselves dependent on platforms such as Booking.com and Expedia to handle their property management transactions – and paying large commissions for the service.

Other industries avoid such costs because they are less fragmented – there are only a few hundred airlines, for example. So there is considerable inter-est among hoteliers in a London-based start-up which is creating a common hotel infrastructure that will open up hotel data to the fragmented market. Impala aims to give a wide variety of travel custom-ers direct access to information about hotels, with the additional benefit of offering them more personalised booking options.

Ben Stephenson, co-founder of the start-up, says that he first became aware of the fragmentation problem when he was head of engineering for a luxury travel company in London which worked with 3,000 hotels. Customers would ring up and say they were travelling to the US next week and asking whether there were rooms available in New York. The company would phone all its partner hotels there, ask them about the availability of their accommodation and send their answers back to the customer. However the delay would often have led the customer to make their own arrangements with reserva-tions on hotel booking platforms such as Booking.com or Expedia which were much quicker to respond.

This was frustrating for the travel company which wanted to digitise its business by creating its own app and website that customers could use to book accom-modation for themselves. But with 3,000 hotels, there were 3,000 different sets of booking data and it would take months or even years to incorporate them all onto a booking platform. So Ben Stephenson founded Impala

to create a common hotel infrastructure that could connect customers directly to different booking systems – effectively allowing travel firms to build their own versions of Booking.com or Expedia.

Many industries already have such Application Pro- gramming Interfaces (APIs), including Twilio, a multi-million dollar telco infrastructure provider. ‘Impala is following that kind of trend in the hotel industry,’ says Ben Stephenson. ‘As service industries evolve, lots of varieties of infrastructure emerge for their businesses and they then try to create a common infrastructure that can enable communication between them. Impala is doing the same, and by offering a solution to a big problem facing hotel managers has quickly become well-known in the industry.

‘Just like the trend towards open banking, the hos-pitality industry needs to devise solutions that are smart, responsive and can talk to the world outside. By democra-tising access to hotel data, Impala will fundamentally change the way people book hotels and also the ancillary services offered by the places where they stay.

‘But we do not ask hotels to switch from their old-school property management systems to an entirely new system: we upgrade their existing systems to modernise the infrastructure which sits on top of the old system. Rather than paying the commissions of up to 25 per cent charged by booking platforms, Impala will charge something closer to credit card processing fees of around 3 per cent. An added benefit is that it can create opportunities for hotel customers to personalise their bookings.’

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The company currently employs 43 people, half in London with the others located around Western Europe. From the start, Impala believed that it did not make sense for all the staff to be based in London, and operates a remote-first policy in the belief that hiring people else-where and allowing them to meet potential overseas customers face-to-face would be more productive. It also pays for attractive staff benefits such as generous holiday pay and personal budgets to furnish their remote working accommodation. And when staff move to a new city, they can fly family members in to see it, which is more effective in motivating them.

Ben Stephenson started young in tech, building computers in his bedroom at the age of eight, teaching himself coding and programming and playing online games. At university he switched to studying French and Italian, but after eight weeks badly injured his knee playing sports and moved back home to Middlesborough in the north of England. ‘Returning to programming, I set up a small web design agency in 2008 and renewed my interest in technology. But the onset of the banking crisis made it a terrible time to be freelance, so I moved to London and started working for the luxury travel company. And in 2017 I founded Impala with Charlie Cowley whom I had met through a friend and whose sales skills comple-mented my tech expertise.’

Having started with funding by friends and family, the two co-founders raised a Seed round of USD2 million in April 2018, followed in autumn 2019 by Series A funding of USD11 million. Just a few months later in February 2020, Lakestar led a Series B funding for Impala of USD20 million which was supported by Latitude Ventures, a London-based venture capital fund which had invested in the Series A round. The speed of fund-raising reflected Impala’s attractions for hotel owners: it already had more

O L I V E R H E I M E S

PA R T N E R , L A K E S TA R


A S S O C I AT E , L A K E S TA R

The COVID-19 pandemic has accelerated developments in the healthcare industry, one of the world’s largest markets which has traditionally been slow to adopt the technological and digital innovations that have revolutionised other sectors. Our investment team is excited about the future of healthcare and staying close to companies trying to achieve the required modernisation.

A vital industry facing sharply increased pressure for digital modernisation

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than 300 customers from six continents signed up and an additional 3,500 hotels on the waitlist.

Lakestar was an attractive partner for Ben Stephenson, who had spent a number of months sounding out Christoph Schuh, a partner at the firm who man-aged a series of investments that it had made in the travel market. ‘He had a deep understanding of the industry and was convinced that Impala had the poten-tial to become an important player in the future of travel. After all, it is a USD1.6 trillion industry and Impala’s common infrastructure system could earn 2–6 per cent of that, creating a very profitable business.

‘For my part, I wanted to work with a European fund because I believed that Europe was a very good place to build a broad travel company. And I saw an opportunity to learn from the excellent European network that Christoph had established.‘

Are there any worries that keep Ben Stephenson awake at night? ‘Start-up founders normally have two preoccupations,’ he says. ‘The first is whether we have enough money in the bank to succeed – and we know that we do. The second is whether we can build the right executive leadership team to make the company succeed. As we scale up from 40 people to 400, 4,000 and 40,000, I devote 95 per cent of my days to ensure that we are hiring the right executive team. That’s a pretty stock answer but it has the benefit of being very true!’

Has the COVID pandemic disrupted his plans? ‘A global pandemic is not a positive thing,’ he replies, ‘but building infrastructure in an industry needs a big catalyst for change and for better or worse COVID-19 provides it. Some businesses will go bust and have to be replaced, and others will have to cut staff really deeply until markets recover. But COVID is a significant catalyst and we are seeing that now with Impala.’

‘By democratising access to hotel data, Impala will fundamentally change the way people book hotels and also the ancillary services offered by the places where they stay’

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P R E S S U R E F O R D I G I T A L M O D E R N I S A T I O N

Over the past 10 years, investors have deployed more than USD40 billion into healthtech in an attempt to drive change in the healthcare ecosystem which, com-pared to other industries, has been left behind as a result of complex incentives and structural roadblocks.

Despite the amount of investment over the past few years, there have been no significant material inno-vations that have disrupted the way healthcare stakeholders experience and interact with the ecosys-tem. The reasons behind this comparative lack of modernisation within healthcare should be seen through the lens of the incentives of the different players within healthcare. Hospitals have traditionally operated at large scale but their underlying profitability of close to 2 per cent has resulted in relative technological stagnation. Setting aside the change-averse culture that permeates healthcare systems, start-ups trying to sell to them need to balance cost, efficiency and meaningfully dis-ruptive product innovation for healthcare providers to take notice.

In addition, technologies that improve patient outcomes require the alignment of different healthcare providers. However, those providers do not share the same incentives, so any company trying to make an impact on patient outcomes also needs to alter provider behav-iour meaningfully.

Overcoming these challenges still leaves companies having to convince end-consumers of their value proposition. This has historically been a tough sell with engagement metrics such as repeat rates and net retention being an order of magnitude lower compared to tradi-tional SaaS businesses. Finally, any company strategy needs to be aligned with and adaptive to regulatory changes which have a ripple effect within the ecosystem.

We believe that COVID-19 has structurally altered the mindset of the different stakeholders within the healthcare ecosystem. We are still in the early phases of this push towards modernisation but the signs are here.

The healthcare industry has been a frequent target for Lakestar which made an early investment in


E X A M P L E S O F F O C U S A R E A S

V I R T U A L C A R E A N A LY T I C SI N F R A S T R U C T U R EV A L U E

B A S E D C A R E

Virtual Care is here to stay

Telehealth has seen dramatic increases during social distancing and acceleration of adoption

New services and technologies enable clinicians to provide care and diagnostic tests remotely

Increased emphasis on modernisation of our healthcare and public safety infrastructure will continue

The pandemic has demonstrated the poor insight we have into how patients move through the healthcare system

Rapid data aggregation and analytics will be highly valued

Providers and pharmas have rapidly deployed COVID data analytics to build registries and identify risk factors

Consumers taking an active role to monitor their own health and make more informed decisions

Expect value-based care (and bundled payments in particular) will get a long term boost

Payers shifting payments towards alternativemodels that tie reimbursement to quality and efficiency

Oscar Health, a US company which aims to use disruptive technology to redefine the consumer experience by sim-plifying its patient-charging structures. It also introduced several innovative benefits such as unlimited free tele-phone consultations and free annual physicals for all customers. Oscar’s healthcare system can be accessed through concierge teams who find doctors for its patients and help manage chronic conditions by using the Oscar app or online. It also uses patient data to make continuous improvements to the quality of its services.

The company has grown steadily since opening for business in 2013, extending its operations into new regions and cities and signing up new doctors and phy-sicians who like what they see as a more attractive business model. Lakestar’s investment team has also learnt much about the complexities of the US healthcare system which include often strange relationships between hospitals and professionals, perverse incentives which lead to higher costs for patients, and infrastructure weaknesses that fail to move patients through the system smoothly and profitably.

A subsequent Lakestar investment was in Cedar Health, another US company which has tackled the billing systems for conventional medical treatment. These can be alarmingly confusing – even for a single course of hospital treatment. Cedar found that the com-plexities were a significant factor in the non-payment of medical bills, a major contributor to bad credit scores in the US. The company looked at large online businesses such as Expedia, Amazon and Netflix and found that they had much more efficient approaches to payment collection, such as making their bills understandable by replacing codes and Latin words with everyday English.Lakestar believes that such healthcare systems are evolving in three important ways. One is responding to the increased demand for better services through digital medicine where low-hanging fruit includes enhanced triage, contact tracing and virtual health assistants which can provide care and diagnostic tests remotely. The second is workforce management to ensure that doctors and other professionals can use their time effec-tively through faster tech innovations such as enhanced doctor/patient communication systems and improved data interoperability. And the third is upgrading infra-structure with increased emphasis on workforce management techniques that hire better staff, retain the best performers and create collaborative team-care.

Many of these approaches have been talked about for years, but COVID-19 has led companies to accelerate progress in order to unlock the benefits of modernisation.

Lakestar has summarised the changes in four key theses:

1. Virtual care can ensure that professionals have fast and reliable access to new services and technologies. There will be no need to wait in a hospital for a ten-minute check-up in a virtual waiting-room that patients hate.

2. Infrastructure modernisation will ensure that patients flow smoothly through the healthcare system and that emergency systems do not become overloaded. It requires significantly better communications between patients and professionals to achieve the best outcomes.

3. Analytics should aggregate data rapidly and then analyse it to develop the drugs and procedures that can optimise treatments. The US has a head-start in this, but European companies are starting to build up their ana-lytics capabilities, which is helpful for clinicians but also allows patients to unlock tools that help them to moni-tor their own health and make more informed decisions about it.

4. Value-based care can bring together virtual care, infrastructure and analytics to help companies move to results-based treatment which strengthens incentives to choose optimal clinical results rather than just encour-aging many more costly procedures.

USD bn

Components of Waste in U.S Healthcare Spending

1,000

800

600

400

200

0

Missed Prevention

Fraud

Excessive Prices

Inefficient Care Delivery

Excessive Admin Costs

Unnecessary Services

U S D 1 . 0 T R I L L I O N O F A N N U A L H E A LT H C A R E S P E N D L O S T T H R O U G H

W A S T E & I N E F F I C I E N C Y

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‘Changes in regulation can have favourable consequences for many aspects of digital health, particularly in Europe where

they can be genuine catalysts for growth and change’

USD bn

2018

USD86.4bn

2025

600

400

200

0US, USD35bn

Rest of worldUSD 52bn

USD504.4bn

CAGR: 29%

US, USD202bn

Rest of worldUSD 303bn

2011

13

2012

0

2013

3

2014

2

2015

5

2016

6

2017

8

2018

12

2019

D I G I TA L H E A LT H M A R K E T P R O J E C T E D T O G R O W T O U S D 5 0 4 B N B Y 2 0 2 5 AT 2 9 % C A G R

2 5 U S D 1 B N + M & A D E A L S I N D I G I TA L H E A LT H S I N C E 2 0 1 6

R A P I D LY G R O W I N G S E C T O R AT C R O S S R O A D S O F H E A LT H C A R E A N D T E C H W I T H M U LT I P L E TA I LW I N D S

N U M B E R O F M & A D E A L S W I T H > U S D 1 B N T E V


A V I T A L I N D U S T R Y F A C I N G S H A R P LY I N C R E A S E D

P R E S S U R E F O R D I G I T A L M O D E R N I S A T I O N

US Market Tailwind: increased government support

– Mandating and paying for electronic medical record adoption

– E-prescribing rules

– Telehealth rules expanded to improve reimbursement

– Continued support of value-based care, which requires tracking of outcomes and quality

US Market Tailwind: customer base expanding with new categories of buyers for digital health products

– Traditional buyers – hospitals and payers increasing IT budgets now that digital data foundation layer in place

– Pharma – using data to improve drug development, clinical trials, and commercial efforts

– Self-insured employers – rising employee healthcare costs driving adoption of digital health tools for wellness and preventive care

– Consumers – high deductibles forcing customers to search for care online and tools to reduce out-of-pocket costs

Source: Gartner, Global Market Insights, and Transformation Capital estimates; Digital Health Market covers Telehealthcare, Mobile Health, Health Analytics, and Digital Health Systems

Proprietary and Confidential

A telling example of the perverse incentives inherent in the US healthcare system is the regulatory requirement that insurance firms must limit their margins to a maxi-mum of 20 per cent. This may appear to be a rational strategy to reduce overcharging on premiums, but it leaves them free to charge up to 20 per cent on USD1,000, which can increase their charges year by year. This is in contrast to Oscar Health which owns the entire infra-structure of its healthcare system and can save customers large amounts by using its analytics capabilities to identify inflationary pressures and direct patients to doctors whose results do not inflate the costs inherent in the margin rule.

In fact, changes in regulation can have favourable consequences for many aspects of digital health, particu-larly in Europe where they can be genuine catalysts for growth and change. Emerging regulatory changes in Germany allow doctors to prescribe digital apps with health benefits that can be reimbursed through its health insurance system. Another reform has legalised remote medical treatments in Germany by lifting a ban on advertising them in 2019. The UK is also opening up new public/private partnerships with digital first providers, while its long-term healthcare plan will give patients the right to digital healthcare by 2023–24. Similar moves are extending the roll-out of nationwide e-prescriptions in France and Germany.

Critics often say that regulatory changes which bring in new charges are rip-offs, but they should be seen as a response to the healthcare crisis which saves patients having to make lengthy and expensive trips to hospitals. They also provide incentives for doctors to adopt such practices and create fundamental changes that are incredibly important for healthcare innovation in the era of COVID-19.

There are important lessons that potential investors can learn from such developments. They must be prepared to make investments that look very different from tradi-tional SaaS businesses by eliminating the underlying complexity and unpredictability of the healthcare system.

Finally, it is not enough to analyse the traction behind medical developments. It is important to view companies within the healthcare industry as part of a system which analyses regulatory tailwinds together with product development decisions, unit economics and go-to-market strategy. These need to be considered together in order to ensure alignment between the value proposition and the architecture of companies.

In drawing up these theses, we have spoken to many healthcare companies in the past few months. Using these interactions, we are hoping that new invest-ments will accelerate the innovation necessary to satisfy the increasing demand for healthcare modernisation.

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L A K E S T A R U P D A T E

I N V E S T M E N T T E A M K E Y G E O G R A P H I C A L F O C U S A R E A S

S E N I O R I N V E S T M E N T T E A M

A S S O C I A T E S

K L A U SH O M M E L S

Founder of LakestarZurich

C H R I S T O P H S C H U H

PartnerBerlin

Focus area Travel

MobilityTransportation

M I K A S A L M I

Managing PartnerZurich

Focus areaGames & Media

Consumer


Partner & CTOLondon

Focus area Digitisation Tech

Deep Tech

J U L I A N W O K O E C KSenior Associate

Berlin

O L I V E R H E I M E S

PartnerZurich

Focus area Healthtech Proptech

M I C H A E L S T U E N K E L

PartnerHong Kong

B E N C O U S E N SSenior Associate

London

N I C O L A S B R A N D

PartnerZurich

Focus area Fintech

Insurtech Blockchain

M A T H I A S H A N I E L

PrincipalBerlin

Focus area Industry 4.0


AssociateLondon


L A K E S T A R U P D A T E


T I E R 1

GermanyUK

T I E R 2

FranceNordics

US East Coast

T I E R 3

IberiaIsrael

US West Coast

T I E R 4

IrelandSwitzerland

Austria Netherlands

Lakestar’s investment team is based in three different locations: Berlin, London and Zurich

L A K E S TA R . C O M

Documents

INSIGHTS AND UPDATES ON LAKESTAR BRIEFING · 2020. 8. 28. · Eva-Maria Meijnen. ‘We received the Term Sheet from Ping An on 24th March, two days after the all-time peak of the