Why Investors Back Clinical Trials
A guide to how investors think about investing in research for health focused companies
The investment side of nutrition, and broadly health-based companies, has been something that I’ve learnt a lot about over the last 6 months.
From my experience, investors put money into companies when the following conditions have been satisfied, where they have:
Traction (sales)
A costed plan with a clear focus, and capital allocation on the bottleneck holding the company back
Funds going towards something that will make the company more money (an asset) in the future
Now, whilst all of these things are true and will be things they might think about, ultimately, I would say their decision will come down to two deeper motivations:
Is this company going to at least 10x in valuation in the next 5 years?
Would I be massively missing out by passing on this opportunity?
Investors in the nutrition space are understandably sceptical about where founders put their money, and they should be.
Especially in the nutrition space, there are so many things founders can invest in that often just end up being a massive waste.
If you’re pre-seed up to Seed or perhaps Series A, the responsible decision is just whatever gets you ROI within the next month, because that’s pretty much as far ahead as you can really afford to look.
After all, bad cash flow is what kills companies…
But once your MRR is increasing and your numbers are looking more repeatable and consistent… where do you put the money?
Paid ads often are subject to diminishing returns after a certain point, meaning CAC increases, and your CAC-to-LTV (thanks, Alex Hormozi) ratio becomes much less favourable.
Maybe influencers (of questionable credibility) are what you opt for…
Borrowing the credibility of others to bolster your own brand in lieu of data that your product really works?
But what about margin?
There appear to be two pathways or buckets that companies in this space fall into:
Commodities, or differentiated products and ingredients.
Commodities… a race to the bottom where you cheapen your ingredients, cut costs wherever possible and hope that you can edge out the competition. Aka razor-thin margins. Aka most whey protein products.
But what does a differentiated product look like?
What if you could position your product such that there isn’t another comparable product that people can look to?
Not only does this get you more premium pricing and, in turn, increase your margins… but it also builds real brand value and credibility that compound.
Investors back companies and products with unreasonable advantages and push the gas pedal to help them get there faster.
If you’re building a nutrition or health brand and want to talk about how published clinical trials can get you premium positioning and change your marketing from a pretty colour scheme to something credible, reply to this email or drop me a message.
And if capital is the blocker, this is exactly what we built StudySetGo Connect for: matching health and nutrition companies with investors who specifically back evidence-driven businesses, so you can fund the clinical trials that get you there, covered by NutraIngredients here.
All the best,
Nathan