Signs of life: another view on healthcare investments and exits as of mid-year

August 22, 2024 | by

Silicon Valley Bank and their reports live! Now under the aegis of First Citizens Bank, SVB’s 14th Healthcare Investments & Exits Mid-Year Report for 2024 covers four healthcare areas: biopharma, health tech, DX (diagnosis)/tools, and device. Concentrating on health tech, highlighting their findings which are very different than the other three sectors and mostly in line with H1 findings from Rock Health that this Editor analyzed as possibly a ‘dead cat bounce’:

  • Series A raises are easier than in other sectors, and growing. It is the second-strongest start for Series A health tech investment since 2021. While average valuation sizes are remaining static around $10 million, and deals to date are just under $8 billion.
  • For later-stage companies, their high valuations during the palmy days of 2020-early 2022 created a ‘valuation trap’. The report uses ‘nadir’ to describe it–“now investors (who) are now opening up their coffers for new investments.” (The picture might be less optimistic if one pulled out Transcarent, which is controlled by two investors, General Catalyst and 7wireVentures.) Flat and down rounds are the norm.
  • They term the above ‘price discovery’, defined as the opportunities to extend due diligence, “build conviction” and build the “right syndicate” of investors.(Above all page 14)
  • Investment is accelerating at a rate above the other sectors (page 18). 
  • Exits have cratered at $0.2 billion with only four M&A deals reported. “Companies are preparing themselves to be good public market performers by tuning their cash efficiency and ensuring good unit economics”. Their view is that this may accelerate in H2 2024. (page 21).

SVB is offering the report online as a free preview download. Contact them for the full report.

Rock Health puts a kind-of-positive spin on digital health’s ‘annus horribilis’ 2022–a boring 2023

January 13, 2023 | by

Your Editor will be blunt. 2022 was a bucket of cold water, a bursting of bubbles, and generally an annus horribilis (as the late Queen Elizabeth referred to 1992, 30 years prior) for digital health, healthcare tech, and healthcare in general.

Here are the highlights of Rock Health’s 2022 full-year report on digital health funding for US-based digital health companies, published late last week and presented this week at JPM, through the gimlet eye of your Editor: 

Total funding for 2022 was $15.3 billion. There were 572 deals, averaging a deal size of $27 million.

  • 2022 was just over half in activity compared to 2021’s “to the moon”: $29.3 billion over 738 deals averaging $39.7 million.
  • 2022 also barely made it past the pandemic year of 2020 with $14.7 billion over 480 deals averaging $30.6 million.
  • 2022 Q4 fell into a hole: $2.7 billion versus 2021’s $7.4 billion

If 2021 matched prior growth trends instead of the bubble it was, 2022 would have been viewed as flat or slightly down. 

Late stage mega deals fell into the same hole. In 2022, 35 digital health startups raised rounds of $100M or more, compared to 2021’s 88 and even 2020’s 43. 

The Covid-driven investment boom across digital health that characterized 2021 is over. The economy with a 6-8% rate of inflation, energy shortages in much of the world, supply chain disruptions, rising interest rates on money, and the rising possibility of recession led to investor cold feet. It ended the 2019-2021 takeoff and started a down cycle.

Recalibration to a ‘more sustainable run rate’ when it comes to investment

“Disrupting healthcare” may sound good, but it has a spotty track record of success. What’s attractive long term? Incremental transformation within conventional healthcare operations that in this Editor’s view cut time, cost, increase reliability, simplify processes and/or workflows, improve interoperability, reduce operational burden, or improve communication. Preferably, a combination of several of the previous!

D2C startups are particularly vulnerable to the economy–they run hot, multiple companies jump in, and then they’re cold. They have to invest a lot of money to establish a presence with consumers and that money is no longer cheap or available. Some with a decent consumer footprint can focus on B2B entry, though that is a long-buy cycle move.

Most companies will be focusing on the near term, with some of the smarter ones planting some ‘seeds’ for the future

A witty note in their report: “In the current VC climate, strong horses will beat out unicorns…though investors run the risk of betting on the wrong equine.” (Editor’s note–it may be hard to tell the difference. And unicorns have horns that poke bubbles.)

What was hot?

  • Series A deals, the conservative bets of VCs. Yet, in Rock Health’s view, these may be riskier: “investors are more likely to pay more on a risk-adjusted basis for a startup than its later-stage funders, twisting the risk-adjusted valuation upside down.” 
  • In clinical indications, mental health stayed top of the pops. Cardiovascular and oncology rose along with dark horse reproductive and maternal health. What fell? Diabetes.
  • In value propositions (sic), on-demand healthcare and R&D flipped positions from 2021. Dark horses nonclinical workflow, disease monitoring, and care coordination moved into the top 5

And what players had problems? Health systems and the tech giants seeking to move into healthcare and away from ad-based or transactional revenue. As we’ve seen, Amazon dumped Care and is facing scrutiny over One Medical, Alphabet is cutting Verily, and Meta is overall pulling back. Microsoft seems to be concentrating on incrementals and Apple has other concerns over sourcing and patents.

Rock Health’s conclusion is ‘kind-of-positive’. (What, you expected doom and gloom?) “We expect that 2023 will be built up on slow, steady, and maybe even boring strategies for healthcare startups and enterprises alike: managing cash, re-structuring to accommodate revenue volatility, and investing in technology infrastructure.”

Figuring out the future for health tech after 2022’s realignments: new SVB study

November 10, 2022 | by

As Readers who subscribe to our Saturday Alerts (repeated on Wednesday) have seen, this Editor has dubbed this season Realignment Autumn. From the fever pitch of funding, hiring, inflated valuations, SPAC funny money, and unrealistic expectations that started in 2020 and peaked in 2021, we in the industry are now fretting that we can’t get back to 2019 or 2020. Part of the new reality is that telehealth and health tech are far beyond that point in tech integration, ease of use, and takeup by enterprises, but has entered an uncertain business period more than a bit overextended and overexpecting. Unprofitable lines and side businesses, however promising, are being dropped or sold. Talented people who helped to start them are gone. The trend toward consolidation, which started last year, is accelerating.

For a more financial and data-oriented view, Silicon Valley Bank’s latest, “The Future of Healthtech 2022”, does not disappoint. This is a far deeper dive than served up by Rock Health, StartUp Health, and (unless you are a subscriber) CB Insights. This is a US and EU (including UK) view of how investment patterns have shifted, and a look at where investment may be going next year.

So far in 2022 they have seen:

  • Lower valuations and plummeting share value of public companies
  • A shift from ‘growth at all costs’ to a clear value proposition and creation: improving health outcomes, access or affordability.
  • Investments are more modest and at earlier stages–no more blockbuster Series Ds and Es (40% decline in mega-rounds of $100 million+)
  • No IPOs so far
  • Only 18 unicorns formed this year
  • M&A still rising at the right price
  • Companies have to deliver measurable value to continue driving innovation

Through 30 September, SVB tracked investment at $23 billion. Where it’s going:

  1. Provider operations: $7.0 billion–defined as technology that improves efficiency and accuracy of provider-provider, provider-patient interactions
  2. Clinical trial enablement: $6.8 billion
  3. Alternative Care (includes telehealth and mental health): $5.6 billion
  4. Wellness and education: $1.3 billion
  5. Healthcare navigation: $1.3 billion
  6. Medication management: $833 million
  7. Insurance: $117 million

Sections drill down on these sectors and subsectors such as mental health and women’s health, including an analysis of female-founded health tech companies, investors by sector, and a historical view of unicorns. Grab a cuppa and take your time with this one!

2017’s transition in digital health funding: is it maturity or a reconsideration?

April 5, 2018 | by

Rock Health’s topline for 2017 digital health funding is impressively upbeat, casting it as “the end of the beginning in digital health, the start of a new era with new challenges”. Digging into it, there is a continued slowing that Rock Health itself predicted back in their 3rd Quarter report [TTA 3 Oct 17]. It seems that the big did get bigger, but if you weren’t on the train in 2016 or prior, 2017 wasn’t the year you left the station. Their findings bear this out, keeping in mind that their tracking is for US companies with deals over $2 million in value, which excludes much of the action from young and international companies:

  • No digital health IPOs this year, in a weak year in general for IPOs
  • For the companies already in public markets, they outperformed the S&P 500 31 percent to 19 percent
  • Average deals hit an all-time high of $16.7M ($5.8 bn over 345 deals) 
  • Big money went to better-developed, more mature companies like Outcome Health and Peloton exercise equipment at $500 million and $325 million. Rock Health duly notes Outcome Health’s troubles since. (To this Editor, Peloton is not a digital health company despite its glitzy overlay of video and exercise community.)  
  • Seven $100 million + mega-deals front-loaded in the first half of the year. Second half’s sole big deal was genetic testing and data marketer 23andme. The dominant category of business? Consumer health information represented by Outcome, 23andme, PatientPoint, PatientsLikeMe, and ShareCare, most with a B2B2C model.
  • Looking at deals by stage, not surprisingly the funding at D and later rounds soared to an average size of $74 million (from 2016’s $46 million). Seed and A rounds’ average funding at $7 million, while the majority, hasn’t varied much since 2011. Series B funding was also flat at $17 million on average.
  • Exits continued to be weak, indicating the reality of healthcare investing being long haul. M&A deals declined for the second straight year to 119–18 percent fewer than 2016 and 36 percent fewer than 2015

Also Modern Healthcare.

This Editor’s opinion? One damper on 2017 was the $900 million credulously blown on Theranos. Call it the Theranos Effect.

As usual we will look at StartUp Health‘s always numerically bigger report after release, but this Editor’s bet is that it won’t be ‘crazy’ like earlier in 2017. 

Rock Health’s Q3 report: funding and mega-deals cool down

October 3, 2017 | by

Too hot not to cool down? This year’s digital health funding, as reported by Rock Health, may be ‘just one of those things’ depending on what happens next quarter. After a torrid Q2 which brought first half 2017 to an explosive $3.5 bn [TTA 11 July], Q3 added only $1.2 bn for a total $4.7 bn. Bear in mind that this is larger than the full years of 2014-2016, and that Rock Health tracks only US deals over $2 million in value from venture capital, excluding government and grant funding. Rock Health’s report concentrates on deal sizes, trends, and types of companies. Here’s what this Editor found to be interesting:

Here’s what this Editor found to be interesting:

  • Number of deals is at a record: 268 digital health funding deals across 261 companies. In 2016, 240 digital health venture deals had closed by the end of Q3 in 2016.
  • Few mega-deals this quarter: The only ones are 23andMe with a $250 million round in September followed by cancer data company Tempus’ $70M Series C round. Average deal size dropped to $14.6 million. The cooling is great enough for Rock Health to predict that there may not be any IPOs this year–23andMe was considered the leading candidate but instead went for another round.
  • 16 percent of companies funded in Q3 are led by women CEOs, up from 11 percent. Of course, this is influenced by 23andMe’s founder/CEO Anne Wojcicki. But almost more importantly, there’s been a breakthrough in that women’s and reproductive health companies continue to gain funding traction, and most are led by women.
  • The two top categories for funding through Q3 are consumer: health information and personal health and tracking tools.
  • Yet companies are shifting to a B2B business model from B2C, with 23andMe in the lead targeting drug discovery via the Genentech deal they have had for a long time. 61 percent of digital health startups that Rock Health tracks converted from B2C to B2B. No surprise to this Editor as consumer adoption is a slow and costly road.
  • Exits are also cooling down as long-cycle reality hits. The ‘nine-inning ball game’ stated by an investor is, given healthcare’s long cycles, regulation, and slow adoption, is more like 15. 
  • Some recovery in public companies making money in earnings per share (EPS). Teladoc‘s recovered, while NantHealth continues in the doldrums. (Perhaps it’s Cher suing Patrick Soon-Shiong?)

Awaiting StartUp Health‘s always numerically bigger report, but this Editor’s bet is that it won’t be ‘crazy’ like Q2 [TTA 15 July]. Rock Health Q3 report.

Health tech arrivals (Philips, Roche, VRI, PushDoctor)…and departures (Pact, Jawbone)

July 6, 2017 | by
[grow_thumb image=”https://telecareaware.com/wp-content/uploads/2016/03/Looney-Tunes-Were-in-the-Money.jpg” thumb_width=”150″ /]This popular vacation week has been filled with ‘money under the wire’ news of acquisitions, investments…and one high-profile owner shuttering a pioneering activity app.

Acquisitions:

Philips Healthcare added London-based pregnancy app developer Health & Parenting for an undisclosed sum. Its most popular app is Pregnancy + (and ++), with 12 million downloads via the Apple Store and Google Play, but others are Baby + for all things baby-rearing, and Baby Name Genius to Find That Ideal Name. It will fold into and diversify Philips’ existing uGrow digital parenting platform which includes the Avent smart baby monitor and smart ear thermometer and leverages the open infrastructure of Philips’ Health Suite Digital Platform. One wonders at the flood of data flowing from these apps to these devices and what Philips will do with all these points. Release, MedCityNews

Roche acquired Austrian partner mySugr, a management tool that promises to ‘make diabetes suck less’. Last year they added Roche’s Accu-Chek Connect blood glucose monitor to its chosen device connect and sync list. mySugr features an app for users to log their meals, exercise, glucose levels, and mood. It also captures pictures of user snacks and unleashes “a diabetes monster” avatar when the food choices are poor based on their glucose levels. Terms were not disclosed. MedCityNews

Telecare/monitoring company VRI quietly acquired Healthcom from Woodbridge International. Healthcom’s primary area is care transition management using medical alerts, telehealth, and medication management for payers, government agencies and care partners. Originally positioned as a partnership June 30 on VRI’s website, Globe Newswire confirmed the sale a week later. Terms (again) were not disclosed.

Mobihealthnews rounded up 24 major acquisitions, including GreatCall (by GTCR) and Best Doctors (Teladoc)–all by June 30!

Investments:

Manchester’s PushDoctor telemedicine app raised $26.1 million in Series B financing from Accelerated Digital Ventures and Draper Esprit plus Oxford Capital Partners, Partech Ventures, and Seventure Partners. This added to their $10.1 million Series A raise in January 2016. PushDoctor connects UK patients with NHS-registered GPs for virtual visits costing only £20. Unlike US-based tele-docs, Push Doctor issues prescriptions, makes doctor-led referrals to other health providers and specialists, and helps manage repeat prescriptions. Their founder also has an eye on managing long-term conditions, short-term illnesses, fitness, and nutrition. Their major UK competitors are Babylon Health (which recently raised £50 million for its triage app), Ada Health, and Your.MD. Crunchbase, TechCrunch, Mobihealthnews

And shutterings:

Pioneering fitness incentive app Pact (founded 2011) announced its closing by end of August. Originally a ‘get thee to the gym’ app, it branched out into healthy food (eat more vegetables!) and tracking meals with MyFitnessPal. Pact never truly emerged from seed funding. A rare stumble by Khosla Ventures, which led a 2014 bag-of-skittles round of $1.5 million. Mobihealthnews, Crunchbase

Jawbone closed out the week by liquidating and transubstantiating into Jawbone Health Hub. More on this here. 

Q1 digital health investment: two perspectives from StartUp Health and Rock Health

April 11, 2017 | by

StartUp Health’s and Rock Health’s investment/M&A roundups from Q1 2017 have just hit the deck. Before we dig into them, let’s start with the differences in methodology:

  • Rock Health tracks deals only over $2 million in value; StartUp Health seems to have no minimum or maximum; the latter includes early stage deals at a lower value.
  • StartUp Health gathers in international deals at all levels, whereas Rock Health includes only US-funded ventures.
  • Rock Health omits healthcare services companies (citing Forward, Oscar), biotech/diagnostic companies (GRAIL, Theranos), and software companies not solely focused on healthcare (Zenefits)
  • StartUp Health defines ‘digital health’ differently than Rock Health, with categories of ‘patient/consumer experience’, ‘wellness’, ‘personalized health/quantified self’, and ‘research’

StartUp Health is ‘over the moon’, breathlessly (appropriately as the home of the 25-year Health Moonshot) with Q1 trending, seeing the biggest investment quarter since 2010 at $2.5 bn. Topping up this number was GRAIL, which is developing a blood test for early cancer detection, with a massive Series B at $914 million. Far behind it in the $85-110 million range were (in descending order) Alignment Healthcare (population health), PatientsLikeMe (patient/consumer experience), Nuna (big data/analytics), and PointClickCare (EHR). Population health, patient/consumer experience, and research top their investment activity. Most deals are still seed and Series A (59 percent), but that is down five points from full year 2016; Series B’s share is up three points to 25 percent. But it remains a difficult bridge to cross to C+ rounds.

Rock Health splits the difference and calls it ‘business as usual’, surprised that there hasn’t been a tailspin. Its Q1 sandwiches between 2016 and 2015, well above 2015 but trending 23 percent below Q1 2016. Their biggest deals include the aforementioned Alignment, PatientsLikeMe and Nuna, omitting GRAIL and PointClickCare. Their top three investment categories are analytics/big data, care coordination, and telemedicine (over $50 million). Rock Health tracked almost 20 M&A, noting that many transactions are now ex-California. They also uniquely track public company performance. Here in 2016 is where Readers first noted weakness in NantHealth, but Fitbit and Castlight Health also had miserable quarters. Teladoc, Evolent Health (consulting), and Care.com had a good winter as well. Let’s see what Q2 brings.

Do startups truly threaten the ‘healthcare establishment’?

May 19, 2015 | by

Or are successful startups fitting into their game? Chris Seper in MedCityNews paints the picture of one side of a quandary. The ‘healthcare establishment’ fundamentally and to its detriment does not understand and is threatened by the startup and innovation process. A startup may begin with an idea which is, in his words, ‘almost always flawed, sometimes deeply’. If the founders are smart, they will test their ideas, validate them and change them appropriately. If not, they will fail. But it is easier for the Establishment to point at the most egregious of the bad ideas and use them to rationalize the status quo.

But being congenital contrarians, we paint the house on the other side of the street. Has the Establishment caught up with–or in some cases, co-opted startups, making them and their funders ‘do their diligence’ and be more cautious before emerging? This Editor would argue yes, and largely for the better.

**The ‘Wild West’ days are over. A few years ago, a truly bad or deeply flawed health tech idea or could easily find funding, because it was all blank slate, new and ‘transformative’.The sexiest hooks were Quantified Self, sleep, employer health incentives, interactive coaching, genomics, app prescribing and (last) wearables. A lot of founders imagined themselves as the Steve Jobs of Healthcare, down to the black turtleneck. Now there is a history of success and failure. The railroads reached the dusty frontier towns.

**There’s now a ‘Startup Establishment’. National accelerators (more…)

Health IT funding bubble seen by veteran investor

February 7, 2014 | by
[grow_thumb image=”https://telecareaware.com/wp-content/uploads/2012/12/crystal-ball.jpg” thumb_width=”120″ /] How is health tech like the 1990s ‘dot-com’-ers? Veteran Silicon Valley investor (HealthTech Capital) and former entrepreneur Anne DeGheest projects a ‘Series B crunch‘ in funding health tech and IT in an interview with The Wall Street Journal’s Venture Capital Dispatch. The key factors: angels and ‘unsophisticated investors’ are pouring money into all sorts of devices, apps and related services in seed and Series A stages just to get on board in a hot sector. When the founders of these companies get to Series B and present to more demanding investors, the lack of a true value proposition and a detailed business plan that answers basic questions leave them standing on, as aptly put, ‘a pier to nowhere’ or as Joe Hage termed it last month, ‘insolvent with a great idea.’

Ms. DeGheest’s view that we are reprising the elements of the ‘dot-com’ bubble is confirmed by the numbers in Rock Health‘s and PwC‘s funding reports throughout 2013:   (more…)