The lesson from Figma: Keep the faith

Figma, the design tool that is now valued at $46 billion, is a tortoise, not a hare.

If you haven’t read the venture capitalist Sarah Guo’s recap of Figma’s early days and how long it took for the company to find product market fit, stop what you’re doing and give it a read. Per Guo, who previously worked at Greylock, which led the company’s Series A round, it took Figma CEO Dylan Field more than four years to go from founding the company to taking it to a public launch. The Greylock investor John Lilly took a step back from the firm shortly after doing the deal in 2015, which was around the time that many funds were pulling back from doing consumer deals in favor of opportunities in the enterprise market.

The lesson? It’s not always obvious in the early years who and what the big winners will be. Venture is a long game. Figma ultimately made Greylock and its other investors an enormous return, but it would not have been obvious at the beginning. The company needed true believers who understood the vision, and saw how it would be possible to get there in the end. Guo spoke to other early challenges too in her post like concerns about the total addressable market, struggles with early customers, and a “terrifying” monthly burn rate. Greylock led the round at a moment when the company barely had a product.

This is highly applicable to healthcare, particularly as I’m witnessing so many investment firms move out of the sector because of a lack of exits. It’s my view that it’s far too early for that, and I think these tourist firms are making a mistake.

A quick blurb about some upcoming programming for the Second Opinion Community

When I speak with friends in finance about health-tech, they often point to the lack of companies worth more than $10 billion. Unlike other sectors, there is still a lack of mega companies that create massive bonanzas for investors.

Building a successful healthcare business can be a real test of endurance. We may be looking at 15 to 20 years to create truly generation companies, not 5 to 10. But it would be a mistake to believe that there won’t be behemoth companies here. Healthcare is a $4 trillion market, it accounts for more than 17% of GDP, with service costs (and insurance premiums) constantly skyrocketing, with an increasingly aging society. I can’t think of a bigger market that’s more in need of technology and automation. But those in it need to be playing the long game. Patience is required.

That’s where I’m both dismayed - and not surprised - to see so many of the tourists fleeing the space in search of brighter pastures, namely AI tooling. Meanwhile, AI companies that are targeting healthcare are taking in more than two-thirds of venture capital dollars. I’m not a Luddite. I do see strong potential for AI in healthcare. But have we learned nothing from several decades of attempts to get healthcare buyers excited about acquiring new tools? I’m of the mindset that most of the companies will end up in services (or at least, some portion services) no matter what. And I actually think there’s a big, and underestimated opportunity to invest in AI-native tech-enabled services businesses because of the potential for building more substantial moats. That would be a contrarian bet in this market, and contrarian bets are how VCs make the strongest returns.

Success in healthcare also requires having the right board members around the table. For my podcast, I recently spoke with Othman Laraki from Color whose company has gone through three major iterations. It started as a cancer genetics company, pivoted to providing access to tests and vaccinations during the pandemic, and is now selling into employers and health plans as a virtual cancer clinic. Laraki said some of his early investors underwrote the early thesis around cancer genetics, and many of them are no longer in close touch. But the investors that took the bet on him personally and the caliber of the early team have stuck around and even doubled down. And he’s confident that his company is now in the right spot for the long-term.

Healthcare innovation requires grit, patience and time. This is the hard stuff, but there will be a payoff. Unlike in other industries, it won’t just be a financial one. For a subset of companies in the space, there’s impact here too. I have a theory that healthcare has the most founders that are post financial - they don’t need to be innovating in the space and can afford not to, but they choose to do so because they care. And that’s actually a bet a lot of VC firms are leaning into in other sectors. Just look at all the activity right now around defense tech. Investors are betting on a world they’d like to make possible, so why not apply that same thinking to healthcare? This is a gargantuan, complex, and highly messed up system that needs fixing. Investing in it means returns, and also an opportunity to make things better for every stakeholder in the industry.

The last point I’ll make on this is that those that are writing healthcare off because it’s slow are perhaps unaware of how many quietly profitable companies there are that haven’t gone public yet. Old unicorns are waiting to go public, and new unicorns are getting minted all of the time. I can think of at least a handful of strongly positioned companies like Lyra or Spring Health that could be in a position to go public in the next few years — profitable and generating hundreds of millions in revenues. And that’s just one category. Once the next set of health-tech companies go public, there will be more exits to show for the space. And when that happens, it’ll be obvious. Once it’s obvious, its no longer possible to get outsized returns without getting lucky.

So here’s my thesis - and I’d love to hear yours. It’s too soon to say what the true impact of health-tech will be, both in terms of value to patients and providers, as well as financial returns for investors. It’s certainly too soon to write it off and move on to other sectors. And those entering into the space today will have an easier time of it, because they can avoid making many of the same mistakes as their predecessors. The generational companies are still being built.