Why Startups Marketing Prescription Drugs Need to Tread Carefully

Ro, a direct-to-consumer telehealth business, is raising another round of funding. According to TechCrunch, the company is raising $ 85 million in Series B funding at a $ 500 million valuation. It’s unclear who participated in the latest financing, but Ro’s prior investors include FirstMark Capital, SignalFire, Initialized Capital, General Catalyst, Slow Ventures, Sinai Ventures, Torch Capital, BoxGroup, and Tusk Ventures.

You may remember that I wrote about Ro’s last $ 88 million fundraise just seven months ago. At that point in time, the startup had been marketing itself as a men’s wellness/erectile dysfunction business. But in September, it dropped the “man” from its name and re-branded as Ro, “a mission-driven healthcare company.” (Roman, the cloud pharmacy erectile dysfunction, will continues to exist as a standalone vertical under the Ro umbrella.)

Why did it do that? Because Ro was no longer just focused on erectile dysfunction. It had plans to add two new brands to its portfolio — a new vertical called Zero, a service that helps people quit smoking and Rory, a telehealth brand targeting menopausal women. Ro must have some really impressive numbers that it’s showing to investors given that the company is barely two years old, and it’s already valued at half a billion dollars.

When I told my colleague about Ro’s fundraise a few minutes ago, he said, “Of course — erectile dysfunction pills are the new mattresses.” And he has a point. Tech entrepreneurs have (successfully) re-branded everything from mattresses to razors through beautiful marketing and flashy ads.

So naturally, companies like Ro and others are offering medications for erectile dysfunction and smoking under Instagram-friendly brands. What no one is talking about, though, is that Ro & its stable of competitors are not selling mattresses or razors. They’re marketing prescription drugs with potential side effects. For instance, Ro’s smoking “Quit Kit” contains bupropion, which is a prescription medication used to treat depression that can also help control smoking cravings. I’m happy to be wrong on this one, but I just think history has taught us that “move fast and break things” should come with the asterisk of “and tread very carefully” when building products that directly affect people’s health.

DATA IS THE NEW OIL: I’ve written extensively about private equity’s appetite for cybersecurity companies over the last several years. And it’s easy to see why PE finds the sector so attractive — global spending on technology to protect sensitive data and information is expected to reach an unprecedented $ 124 billion this year.

Just last month, KKR made a minority investment in cybersecurity startup KnowBe4 in a deal that values the firm at more than $ 800 million. The deal was made through KKR’s $ 711 million Next Generation Technology (NGT) Growth Fund, which targets investments in software, security, digital media and information technology.

KKR raised the fund in 2016, and it has delivered returns through the likes of endpoint security software firm Cylance, which was acquired by BlackBerry for $ 1.4 billion earlier this year, and is a lead investor in British artificial intelligence firm Darktrace, which closed its most recent funding round in September at a $ 1.65 billion valuation.

My colleague Rey Mashayekhi sat down with KKR managing director Vini Letteri, who has helped guide the firm’s investments. Below is an excerpt from their conversation. (Read the full Q&A here.)

FORTUNE: Cybersecurity has been one of the key investment areas that the NGT Fund has focused on. What’s prompted you to target that market?

LETTERI: On the cybersecurity side, you hear these phrases that people throw around, like “Data is the new oil,” or whatever. We think about it as, there’s been this big shift in assets and in value from physically assets to digital assets, and the things that generally protect those digital assets today are passwords and networks and other types of things.

Criminal activity is no longer breaking into banks and art museums; it’s stealing data and information, and you see this digitization of crime, if you will, which we think is really interesting. On every board that we sit on, which is hundreds of boards, cybersecurity is a topic of conversation. A decade ago, nobody had heard of a chief cybersecurity officer or a chief information security officer; now, pretty much every company has them, and the need for protection is just going to increase over time.

You’ve said that high valuations hindered your ability to make deals last year. What’s your current take on valuations? Has the environment cooled at all?

LETTERI: In general, valuations continue to be pretty high within the market. If you look at the data, it would tell you that there’s been more money that’s gone into both venture- and growth-stage companies, but there’s been a lower number of deals, so the dollars-per-deal have gone up.

In our role as stewards of our stakeholders’ capital, we have to stay really disciplined. If you look at 2018, it was a really slow year for us from a new investment standpoint; we made one new investment, a great company called OutSystems based out of Lisbon, Portugal. We issued 13 term sheets—we had one that was accepted, which was OutSystems, and then of the 12 where we weren’t the ultimate winner there, 11 of those was because of price. We went back, talked to our team, looked through models, and we just couldn’t get comfortable budging from our offer. We’ve made two investments already this year [KnowBe4 and software firm OneStream], so we’ve already doubled what we did last year.