Watch your cash burn! Now 31 months average for startups between Series A and B. Now what do you do?

Yes, it’s an even longer way from Series A to B. Add some rockslides to that picture (left) and that’s what the road looks like. A thoughtful article in Crunchbase illustrates the changes over the past dozen years. We are certainly not in the palmy throw-money-at-great-ideas-devil-take-the-hindmost days of 2020-21. Their chart has both median and average time from Series A to B and both are at an all-time high: 31 months on average and 26 months for the median, sharply up from 2022’s 26 and 22 months respectively. The lowest quartile of startups took a stunning 38 months median to get to a Series B–that is over three years.

The question for most startups is how long they can hold out till the next successful fundraising. The pattern has been that once the Series A is completed, the founders put most of their time and energy into raising the next round. What they should be doing, according to the article, is cutting costs and extending runways till the time that things improve among funders. Startups should also keep in mind that investors now prefer lower-risk, slower growth, lower ongoing loss startups to the high flying (in 2020-21). high-cash burn/high-growth startups. 

There are exceptions of course in hot sectors, notably AI and generative AI, but formerly scorching mental health has distinctly frosted over. And if your startup is already profitable, that also attracts funding if the sector is appealing.

The CB conclusion is cautionary and to the point: 

Sooner or later, however, Series A companies will have to do one of five things: Get acquired, go public, become self-sustaining, raise more financing, or shutter. If enough years pass with none of the first four options happening, it becomes increasingly likely the startup will not make it.

This Editor will add that the latest shutterings have been in women’s health which never has received a lot of investment (5% according to Rock Health) and to funders is too niche: NYC-based Bunnii (fertility planning) and SimpleHealth (birth control), which sold its assets to Twentyeight Health. Both got trapped in the funding trough between promises and actual funding. Axios

What’s the way forward from the tough picture above? Well, digital therapeutics probably should be avoided as their track record from Happtique’s vetted app prescribing (failed by 2014) to Pear Therapeutics (failed 2023) has been a losing one. This Editor saved a January MedCityNews article to see if their thumbs up-and-down projections on startups raising capital held up six months later. 

  • Thumbs up: companies that serve multiple stakeholders by creating value for providers, pharma, payers, employers, and consumers; those that not only save clients money but also make them money after one year (!); labor/staff-saving systems; anything with clear ROI; concretely addressing issues with affordability, accessibility, and accuracy. 
  • Thumbs down: niche players that serve highly targeted markets; care navigation (and other-Ed.) services where ROI is hard to track; too crowded sectors like patient engagement and clinical documentation unless they can provably be the lowest cost, most efficient provider versus competition

This Editor would add as ‘thumbs up’ technologies that facilitate simple and less expensive deployments that address extreme pain points around Federal/state compliance and legal/safety cost issues such as staff safety, drug diversion, and patient/resident elopement. 

FTA: Companies are advised to diversify their funding as well: reduce dependence on private capital by looking for investments from alternative sources like the government for non-dilutive funding.

What’s your thoughts and experience?

The clunk continues: Q2 2022 digital health funding fades to $4.1B in Q2, down 50% from 2021

Digital health funding continues to take a plunge. Knocked about by the hangover from the pandemic, a grinding war between Russia and Ukraine, gasoline prices jacked up worldwide, and knock-on inflation and looming stagflation, funding continues to slide. The decline in Q2 digital health deals and funding to $4.1 billion more truly reflects the downturn than Q1’s relatively buoyant $6.1 billion, which benefited from the carryover of deals negotiated during 2021’s boom and closing then [TTA 6 April]. Year over year, it was half of 2021’s high of $8.3 billion.

  • 2022’s first half (H1) total of $10.3 billion was down 31% from 2021’s $15 billion. Despite this, it is 63% above the pandemic-stricken 2020’s H1 $6.3 billion. 
  • Average deal size has dropped to $31.2 million from 2021’s full-year $39.5 million and even 2020’s $30.6 million, accounting for inflation in the past two years. Looking at funding size by series year over year, Series A funding is flat but funding for Series B, C, and D+ have dropped substantially.
  • No startups went public but four digital health companies announced plans to go public or were reported to be planning public exits. One SPAC was announced in June to close in Q3, that of VSee and iDoc Telehealth with Digital Health Acquisition Corporation. SPACs, as this Editor has noted, have gone from Funding Hero to Zero under 2022’s economics, causing many SPACs to crack (Owlet, Talkspace) and increased scrutiny by the Feds [TTA 9 June]. SOC Telehealth, an early SPAC, went private after a 90% share price drop [TTA 8 Feb].
  • Average monthly M&A has dropped substantially. 2021’s monthly average of 23 has dropped to 20 in Q1 and 13 in Q2, for a H1 average of 16.
  • Most popular funding areas are mental health (a far ahead #1 at $1.3 billion), oncology, and cardiovascular. Diabetes dropped from #2 to #4, skewed last year by Teladoc’s acquisition of Livongo. Oncology rose to #2 from #6 in 2021. For mental health, given increased Federal scrutiny and legal problems of companies like Cerebral plus the expansion of Teladoc and Amwell into the area, this Editor does not expect telemental health companies to continue to attract this level of funding but may be attractive for M&A.
  • Disease monitoring (a/k/a RPM) as a value proposition moved from #8 to #3 in investment at $1.4 billion. R&D and on-demand healthcare remained in their #1 and #2 positions.

As TTA has noted previously, this was all to be expected. Will 2022 funding perk up like 2020’s did through Q3 and Q4, or fall off like in 2019 as money sits on the sidelines? Rock Health does try to put a rosier shine on the retrenchment in its roundup, as has venture capital–reality can be good for you. Another depressive factor is regulatory uncertainty in multiple areas and Federal involvement, which some companies can work to their advantage. The Rock Health summary discusses this at length. Also Mobihealthnews

SNF emergency telehealth provider Call9 shuts down most operations, after $34M raise (updated)

Is it a symptom of a bubble’s downside? In an interview with CNBC, Dr. Timothy Peck, the CEO of Call9, profiled in TTA only a month ago, confirmed that his company will be shutting down operations. Call9 provided embedded emergency first responders in skilled nursing facilities (SNFs) on call to staff nurses. The first responders not only could provide immediate care to patients with over a dozen diagnostic tools, but also would connect via video to emergency doctors on call. 

Headquartered in Brooklyn, the shuttering of the four-year-old company has laid off over 100 employees as it winds down operations. They claimed 142,000 telemedicine visits and 11,000 patients who were treated via its services. In the past few months, Call9 had inked deals with Lyft for patient transportation and was expanding to Albany NY. They also operated a community paramedicine division utilizing their emergency doctor network.  

This Editor can now reveal that through a reliable industry source, I was informed of Call9’s difficulties earlier this month. Not wanting to ‘run with a rumor’, I contacted Dr. Peck. He confirmed to me information that later appeared in the CNBC article: that the company was refining its model in the face of a change in previous funders and working with some new partners to stay in a model with embedded clinical care specialists in nursing homes. While they would scale back, they still had current contracts. However, the changes in their model would mean that the company would be in a ‘bit of a stealth mode’. After we discussed the business situations that most early-stage health tech companies have faced with funding, we agreed to touch base in a few weeks when things developed.

CNBC, with a different source, had essentially the same information from Dr. Peck on the winding down of the company but in this case also confirmed layoffs, including a ‘pivot’ of the company into a different model around technology in nursing homes. They also confirmed that a part of the company, Call9 Medical, will remain in operations.

Update: Skilled Nursing News had additional detail on Call9’s partnerships which included SNF providers Centers Health Care, CareRite, and the Archdiocese of New York’s long-term care arm, ArchCare. Their first client was Central Island Healthcare, where Dr. Peck lived for three months testing the model. The article goes on with Central Island’s executive director explaining that he is now seeking a telemedicine provider, as they adjusted their services to Call9’s capabilities.

Payer providers included Anthem, Blue Cross Blue Shield, and Healthfirst, plus some Medicare Advantage plans, splitting the savings from avoiding unnecessary ER admissions. Another appeal made by the company for its services was to keep in place higher acuity–sicker–patients in SNFs who would otherwise have to go into the hospital.

As our Readers know, these pages have covered the comings and goings of many health tech and app companies. Some succeed on their own, are acquired/combined with others and go on in different form, or are bought out at their peak, leaving their founders and some employees cheerful indeed. On the other hand, and far more common: the demise of some is understandable, others regrettable, and nearly none of them are cause for celebration in our field–Theranos and Outcome Health being exceptions. This Editor has been a marketing head of two of them (now deceased except for their technology, out there somewhere), and has discussed marketing, funding, and business models with more startups and early-stage companies than she can count.

If anything, investors have less patience than they did back in the Grizzled Pioneer period of the early 2000s, when a $5 million round put together from a few personally (more…)

Is the clock at the funding pub pointing to ‘last call’? (Updated)

[grow_thumb image=”” thumb_width=”150″ /]And we were having such a good time! UPDATED Having ridden a few hype curves (in health tech and out–remember airline deregulation?) and with the bruises to prove it, this Editor believes that she can spot a Cracking Market at forty paces. The hands on the clock appear to be near closing time, even as we party on. After all, DTC telehealth is forecast to be $25 bn in the US by 2025 (GrandView Research), if we make it that far!

Where are the sharp noises coming from?

  • The continuing fail of unicorns like Theranos [TTA 4 May and prior], now resorting to bullying the Wall Street Journal and negotiating with the alphabet (SEC, DOJ, FDA, CMS…), and the troubles of Zenefits. 
  • Another notable unicorn, the doctor booking site ZocDoc, being called out at last on their customer churn, low margins, and high customer acquisition costs. (As well as an irritant to doctors and office managers) New York Business Journal
  • Extremely high and perhaps insane rounds of funding to young companies with a lot of competition or a questionable niche. Higi is an odd little kiosk + consumer engagement program located in primarily Rite Aid drugstores–odd enough to score $40 million in its first venture round. (Ed. note: I shop at Rite Aid–and have never seen one.)This is after the failure of HealthSpot Station, which burned through approximately $43 million through its entire short but showy life. The low-cost, largely exchange plan insurer Oscar Health raised $400 million this February  ($727 million total) while UnitedHealth and others are dropping money-losing plans in most states. Over 50 percent of exchange co-ops went out of business in 2015, leaving doctors, health systems and patients holding their baggage. Again, low margins, high cost and high customer acquisition costs.
  • We’ve previously noted that funders are seeking ‘validation in similarity’–that a few targeted niches are piling up funding, such as doctor appointment setting, sleep trackers and wellness engagement [TTA 30 Dec 15]
  • Tunstall’s continuing difficulty in a sale or additional financing, which influence the UK and EU markets.
  • NEW More patent fights with the aim of draining or knocking out competition. We’re presently seeing it with American Well litigating Teladoc over patent infringement starting last year, which is only now (March) reaching court. It didn’t stop Teladoc’s IPO, but it publicly revealed the cost: $5 million in previously unplanned lobbying and legal costs, which include their fight with the Texas Medical Board on practicing telemedicine–which is beneficial for the entire industry. (But I would not want to be the one in the legal department explaining this budget line.) Politico, scroll down. But these lawsuits have unintended consequences–just ask the no-longer-extant Bosch Healthcare about the price of losing one. (more…)

‘VC tourism’ in Health Tech Land is over (updated)

The ‘silly money’ is packing its bags and taking the next flight from the Coast. An exceedingly tart take out of Fast Company confirms what your Editors have noticed in Rock Health and other year-end reports. Funding for digital health may have surpassed $4.2 billion in 2015, but it barely eked over 2014’s total of $2.3 billion despite rising geometrically since 2011 [TTA 16 Dec 15, revised by Rock Health since then]. Since then, we’ve had the Trouble Every Day of ‘unicorns’ (overreaching) Theranos and (ludicrously) Zenefits [TTA 17 Feb]; EHR Practice Fusion stalled out and cutting 25 percent of its staff, hoping to be acquired by athenahealth–or anyone (Healthcare Dive); shaky Fitbit shares [TTA 20 Feb]. Perhaps the high point was last year’s ‘Corvette Summer’ with yet another big round to a company yet to fulfill its promise, ZocDoc [TTA 15 Aug 15]. Even Castlight Health with decent revenue (still at a loss) has been dubbed an ‘absolute horror show’ when it comes to its share prices, if you were foolish enough to buy it at or near its IPO.

Fortunately a large dose of sanity may prevail among VCs with a sobering realization–no different than five or ten years ago–that investment has to be strategic and far longer than the usual 18 month-and-out time frame. Too many companies have systems which work the same niche–you don’t need 50 companies doing these things: data analytics for care management, patient engagement platforms, med reminders or diabetes management. [We’ve already noted the ‘sameness’ in companies getting funded in 2015, almost as if investors were seeking reassurance in similarity, a sure sign of a coming fail–TTA 30 Dec 15.]

Developers must fill a need–uniquely. And have a superb business plan, squeeze the nickels till they squeak and forget about the party culture. Investors: Dumb Money For Digital Health Will Vanish As Quickly As It Came In


If Silicon Valley were a rose, it would be wilting

Does this signal a new ‘trough of disillusionment’? The lead in this story is one of the major practice EHRs in the US–Practice Fusion. From a high valuation in 2013 of $635 million as a healthcare darling (free to doctors, ad supported), it burned through $4 million cash per month while revenue missed targets by 10 percent, chased after rainbows such as telemedicine, overhired, overperked and overpartied in the office. Now with a quarter of their staff pink-slipped, a new CEO is trying to bail them out. Most of the other examples aren’t healthcare, but huge deals by VCs are slowing, companies are discounting the price of their shares, taking on debt to not dilute shares, laying off employees and subletting their space. Adding to this is the glut in wearables and a slowdown in demand for single-purpose devices, leading to a 20 percent loss today in value in shares of Fitbit (MarketWatch). Like the ‘oil patch’ in the upper Midwest, the San Francisco area is feeling the chill that never really left the rest of the country. And ‘unicorns’ may become an endangered species. Wall Street Journal

A deserved goring of whiz-bang unicorns Theranos and Zenefits (updated)

[grow_thumb image=”” thumb_width=”150″ /]A blog posting this Editor wish she had written. Fred Goldstein, who is a consultant to healthcare systems focused on building accountability and improving population health, has pressed a sharp point to the sparkly bubbles surrounding two Silicon Valley billion-dollar valuation darlings, Theranos and Zenefits, on their playing fast and loose with basic regulations.

Some background for our readers. It’s a pile-on with Theranos, which has been stepped on by FDA for their nanotainers [TTA 20 Nov 15], then whacked by the Centers for Medicare and Medicaid Services (CMS) last month for ‘deficient practices’ at their California testing lab (a remedial plan has been filed this week) and likely losing its lucrative Walgreens Boots deal if problems aren’t fixed in 30 days (having already lost its program with Capital Blue Cross in the Harrisburg area of Pennsylvania). According to Bloomberg, its proprietary testing is now used in only 1 of every 200 tests. Zenefits claims to be the ‘first modern benefits broker’ with cloud-based software designed to simplify and automate such HR tasks as health insurance signups for small businesses, but its software that facilitated skating around required licensure requirements by its staff got its CEO forced out by a key investor, Andreessen Horowitz. (And it gets worse…read on….)

It’s so…whiz-bang! (Updated) Your Editors, past and present, have made hash (corned beef and otherwise) of companies promising revolutions in healthcare since our inception. ‘Whiz bang’ (more…)

Telemedicine’s boffo year? Some confirmation. (US)

Big bets were made on telemedicine (video doctor-patient consults) in 2014. This Editor closed her 18 December article with ‘telemedicine providers received a $200 million+ vote of confidence from tough-minded investors. We’ll see if 2015 results fulfill these whale-at-Monte-Carlo wagers.’ Here may be the start of a tipping point. New York State’s new law requiring insurer reimbursement for telehealth services went into effect 1 January, making NY the 22nd state to require payers to pay up for virtual visits. Permitted providers are physicians, dentists (!), physician assistants, psychologists and social workers. This provider list is considerably broader than Medicare’s new rules applying telehealth for patients with two or more chronic conditions, which is tied to physicians’ offices and contracted third parties. Also cheering the industry are that Indiana, Iowa and Tennessee are holding hearings on potential legislation, with Missouri at the legislative bill stage. (more…)

RockHealth mid-year 2013 digital health report; warm, not hot

RockHealth is back again with its 2013 Midyear Digital Health Funding Report (SlideShare link). The good news from 2012 [TTA 8 Jan] continues, but the growth rate for the half-year is down from the torrid pace of +45 percent increased funding 2012/2011 to a more modest +12 percent versus prior year, with 25 percent more deals done. Former darlings biotech and medical devices continue to sink like stones, down 2 and 29 percent respectively (PwC MoneyTree; also TTA 26 April). What is notable is the ‘small world’ concentration:

  • 90 digital health companies raised in excess of $2 million to date in 2013
  • 20 percent of all funding went into five deals: Proteus, Health Catalyst, Watermark Medical, NantHealth, HealthTap
  • 20 funders did two to three deals each
  • Remote patient monitoring, hospital administration, big data, EHRs and wellness by far lead the way
  • Maturity is still hard to find: only three 2012 A-round deals have proceeded to B round so far this year; seven 2012 B rounds have moved to C round
  • Crowdfunding has partially filled the ‘angel gap’ for companies in wearable fitness tech like Misfit and Amigo (plus HAPIfork), but the bulk of the action has been at non-healthcare specific sites like Indiegogo versus Medstartr and HealthTechHatch which take on a wider variety of health tech such as health management platforms, HIT and even education videos. The reality is that 40 percent do not meet their fundraising goals in an ‘all-or-nothing’ setup.

The cool-off reflects RockHealth’s chief Halle Tecco’s POV that both VC and angel investors are still dabbling in digital health–without a billion dollar success story, there’s still reluctance to put money where sentiment may be. Further at VentureBeat, but the reasons may go deeper….

Update 10 July: Long term, are VCs cooling because fundraising is off? Digital health is one of the few points of growth in a contracting VC investment market. Second quarter fundraising by US VCs dropped 54 percent to $2.88 billion, the weakest quarter for fundraising in almost two years, according to the National Venture Capital Association and Thomson Reuters. In addition, return performance for VC-funded companies has been off relative to the stock market. Less money=less funding. The ‘smaller, more agile fund’ trends may conversely help the smaller funding required for A and B (and modest C) rounds where digital health is still, but the Magic 8 Ball says ‘continue to dabble’. More room for crowdfunding? Reuters

Healthcare tech investment gone wobbly?

Earlier this month, this Editor riffed on David Shaywitz’s Forbes article lamenting the paucity of life sciences VCs setting their sights and putting their money on the line for digital health. While David Doherty of mHealthInsight differed, pointing out his 16 billionaires making big bets in health tech, VC action in ‘hot’ digital health is underperforming. The ironically-named MoneyTree 2013 First Quarter report from PricewaterhouseCoopers (PWC) and the National Venture Capital Association (NVCA), tracks media, software, clean tech, biotech and medical devices. And the ‘Tree’ is not exactly ‘shaking’:

  • For all surveyed VC investment, 1st Quarter 2013 declined 12 percent in dollars and 15 percent in number of deals, compared to 4th Quarter 2012.
  • Medical devices and equipment are an ‘underperform’: down 20 percent to $509 million, deals dropping 10 percent to 71, 1st Quarter 2013 to the prior quarter.
  • In the prior year (2012) 1st Quarter, over $200 million more had been invested in medical device companies. Similar declines were tracked in biotech.
  • The Life Sciences sector (medical devices + biotech) declined to the fewest number of funding deals since 1st Quarter 2009. Even more shockingly, first time VC financings are at 2nd Quarter 1995 levels.
  • Software and media continued to dominate–and grow in funding.

According to investors queried by FierceMedicalDevices, reasons for weak investment in medical devices were: continued lack of transparency at the FDA about approval process, movement away from first round/early-stage to later-stage companies, a focus on companies with devices not needing FDA approval–or already having it. Unfortunate, but rational. One hopes a change of heart, or a change of cycle.  PwC/NVCA release (in FierceMedicalDevices)