How digital health startups should plan for falling investment

Massive capital awarded to digital health companies in 2021, but since then there has been Shrinkage in the public market with a reduction in digital health funding.

Nevertheless, with increased investment in the last year, valuations of companies increased and Many attained unicorn status, a term given to privately held companies valued at one billion dollars or more.

But were companies valued at these high prices too early, creating unrealistic growth expectations?

“We don’t look for operators that are focused on that value at all. It’s how much capital do I need for the next stage of inflection? When do I need to raise more capital, and I’m vulnerable How can I do this by minimizing losses so the team is motivated, but also setting myself up so that I can actually get a flat or up round in the next round?” Emily Melton, Managing Partner at Threshold Ventures, said during a discussion HLTH 2022 conference last week.

Andrew Adams, cofounder and managing partner of Oak HC/FT, said companies now have to learn to navigate the downturn in a market where there was once essentially free money. This led to higher 409A valuations that may have pushed teams into areas that didn’t make sense with the core ethos of the business.

“I think what you do with your precious cash resources and time in the day is to really refocus and prioritize those efforts,” Adams said. “It’s a logical process as opposed to trying to immediately turn the ship.”

Overall, the panel agreed that investment would continue to decline, with some saying the funding shortfall could get worse as time goes on.

“There are a lot of things that look like a macro picture, but I’m looking at it and expecting the rest of this year, whatever’s left, and probably ’23 is going to look even worse.” And then it’s really kind of a challenging situation in ’24. So, broadly speaking, I want companies to have a vision of how they want their cash to last through ’25,’ said Krishna Yashwant, general partner at Google Ventures. Can make.

Melton agreed with that sentiment. Still, each investor noted the importance of focusing on creating a unique offering and leveraging technology in a way no one else has done to ensure investment sustainability.

“I think the message should be how do we build a great company and how do we do it that everybody is going to say, ‘Wow, I want to invest in that company because I see the way,'” Glenn said. Tullman, CEO of Transcarent and Managing Partner of 7wireVentures.

Tullman said understanding a clear path to profitability, ensuring the company has an appropriate capital runway and that its board and investors support the company’s mission are critical.

“I’ve seen a lot of companies say, ‘We just want to survive. Whatever we need to cut, we want to cut so that we can last three years.’ Enterprise isn’t about how long you can last because you can shred it for five or six years and make it.

Yashwant says that planning is important for a company to reach profits.

“We’ve all seen 25%, 50% of companies in the environment, certainly in digital health and digital more broadly, don’t really have a plan for how they’re going to get to profitability. They have a plan. is for growth, but they do not have a clear plan on profitability or positive unit results,” Yashwant said. “I think the low-interest rate environment supported it for a while. I think we’re at a moment where that environment won’t tolerate that anymore.”

Investors noted specific objectives they’d like to see in the next unicorn companies focused on healthcare, with Yashwant saying mental health, senior care and primary care are important to him, and Adams noting that he’s interested in Medicaid. Want to see the unicorn of the future? space.

Melton stressed the need for women’s healthcare to become healthcare.

“We’re allowing politicians to make decisions around our bodies, and a lot of that is because we don’t have the education or clinical context to make those decisions. And that’s not just about healthcare. No. It’s an economic imperative. Women are driving the workforce. We’re expanding GDP, and we really need to have access to the right kind of health care if we’re going to be productive members of our society. are expected to live.

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