Where healthtech pitches fall down: mistakes investors see most

The investors, IP lawyers and validation specialists on stage at Climb26 agreed on where healthtech deals really fall apart: far earlier than the term sheet, and almost always for reasons that are cheaper to fix now than later.

Deals tend to fall apart at the first look, not the term sheet

The deal collapse that gets talked about is the dramatic one: months of diligence, a term sheet on the table, and the whole thing falling apart at the final hurdle. But according to the panel at Climb26’s From Innovator to Investable session in Leeds this July, that’s the part of the process least likely to go wrong.

And when you look at the numbers, you can see where the deals drop off. Giles Moore, Regional Development Manager at venture firm PXN Group, sketched the funnel a typical early-stage investor works through: roughly 1,000 companies approach the firm, around 300 get a proper look, and about 50 go into serious diligence. The steepest cut comes right at the start, when investors weigh up the idea, the founders and the team. As Moore put it: “Most businesses, if you’re going to say no, that’s where you’d say no.”

And once a deal reaches term sheet, it usually completes. “As long as everything you’ve said is honest and true, there are no skeletons in the closet and everything requested is provided in a timely manner, we’d follow through to completion,” Moore said. The rare late-stage collapses tend to trace back to something material a founder didn’t declare, not something an investor suddenly went off.

Which raises the more useful question: if deals don’t die at the end, what kills them earlier?

In healthtech, who buys is not who uses

At the first stage, investors are looking at the idea, the founding team and the commercial case. In healthtech and medtech, that last one carries a complication most sectors don’t have: the person who uses the product is rarely the person who pays for it. A clinician can love a device and still have no say over whether their trust procures it. Moore’s advice was blunt on this point: understand who the buyer actually is, and show real interest from them as early as you can.

That doesn’t mean revenue. One example from the panel made the point well. A Sheffield University spinout had a lab-based product with nine possible customers in the world. The founder was in conversations with eight of them, and two had already signed up for trials. No sales yet, but the need was proven. For a healthtech company, that’s how early demand can be proven: not traction at any cost, but evidence that the people who hold the budget want what you’re building.

Investors check the story, and health is a small world

Companies that pass the first look move into a quieter phase. Investors test the story, referencing founders with industry peers and checking commercial claims against what the market actually looks like.

This is where two common pitch habits may rear their heads: claiming there’s no competition, and sizing the market by multiplying something large by something optimistic. Neither survives a conversation with someone who knows the space, and in health, the investor almost always knows someone who knows the space.

The data room: where the hidden killers live

The panel’s strongest point of agreement came here. When healthtech deals fall apart in diligence, it’s rarely the science. Tamanna Keir, Legal Director at law firm Hill Dickinson, spends her working life scrutinising what sits underneath an innovation, and her verdict was clear: “It rarely falls over because of the innovation. It’s because the legal documentation isn’t there.”

IP is the gap the panel flagged as most common. Louise Perkin, a partner at IP firm HLK with 30 years of commercial IP work behind her, sees the same assumption again and again: founders arrive in diligence believing they own what they’ve built, when the paper trail says otherwise. In her words: “One of the biggest killers is that founders think they have the IP and they don’t, or they only have part of it.”

The usual versions: a development agency or contractor built part of the technology and still owns it. A university spinout is operating on a licence that turns out to be non-exclusive. An assignment was agreed verbally but never signed. The law here is unforgiving of informality. “IP has to be assigned in writing, signed by a person with the relevant authority and have consideration or be signed as a deed (in which case it needs witnessing),” Perkin explained.

IP isn’t the only paperwork problem. Keir listed the others that surface in diligence: messy cap tables, advisors holding meaningful equity with no obligations attached to it, gaps in data protection policies, missing agreements between founders. None of these shows up in a pitch deck. All of them show up in a data room.

For any physical or regulated product, there’s a third category: proof that the thing can actually be made at scale. Sarah Frankland, Head of Validation and Regulatory Affairs at Equans, works with scientists and inventors making exactly that jump, and her warning was simple: “What didn’t work in the lab, won’t work when you scale up.” Investors want the paperwork behind the product: standard operating procedures, validation plans, evidence that processes are controlled and equipment is validated. Even negative results earn their keep in that file. “But a failure isn’t a bad thing, because you need that evidence and learnings too,” Frankland said.

The panel’s summary is blunt: in healthtech, it’s rarely the product that makes a startup uninvestable. It’s the documentation nobody got round to. Regulatory complexity is often what deters generalist investors from the space, so the panel’s take should be no surprise.

Everything on that list is cheaper to fix early

This is better news than it sounds, because every risk the panel named has a known fix, and every fix costs less now than it will mid-diligence.

On IP, that means freedom-to-operate searches at the earliest stage, so a blocker surfaces while there’s still time to work around it. It means if you haven’t secured a patent, that isn’t always the end of the road: a trade secret built into a controlled process, design rights (cheap compared to patents) and copyright backed by a licence agreement can all do the protective work. And it means getting every assignment in writing, signed and witnessed, however small the detail feels at the time.

On the legal side, it means documenting terms with every advisor, contractor and co-founder, because a short written agreement beats a shared assumption every time. On validation, it means building the documentation habit early and keeping the evidence, failures included.

And when a risk can’t be fixed before a raise, the advice was to own it rather than bury it. “Be transparent about risk at the outset, show you’re aware of it, and show what you’re doing to mitigate it,” Keir said. None of the panellists expects an early-stage healthtech company to be risk-free. What they look for is a founder who knows where the risks sit and has a plan for them.

That, more than a polished deck, is what investment readiness means in this sector: a business where the ownership, the documentation and the validation would all survive a careful look. It’s a pattern ThatRound sees across early-stage raises too: the founders who move fastest through investor conversations are the ones who sorted the quiet stuff early, back when it was still the cheapest work of the whole raise.