The general public markets have been a little bit of a actuality verify for a lot of digital well being firms. Of the 18 digital well being firms that went public on an American inventory alternate in 2021, solely two firms (Signify Well being and Owlet) have gained worth from their preliminary value. The opposite 16 have seen a lower from their preliminary inventory value.
Jacob Effron, principal at Redpoint Ventures, doesn’t count on there to be too many modifications within the digital well being funding panorama, though he says the challenges within the public market could give some buyers pause.
“There’s a whole lot of investor urge for food to work with these firms, notably those which can be rising fairly quick. The place there may be challenges is within the later rounds,” Effron says. “Everybody needs to put money into the sooner rounds when firms are rising properly. Given the uncertainty within the public markets, it’s not clear that investing proper earlier than the IPO is the very best bang to your buck or return in your cash. If there have been any retrenchment out there, I’d count on to see it proper earlier than the IPO rounds.”
Bullish attitudes
Different buyers within the subject are bullish in regards to the market tendencies in 2022—and past. Alyssa Jaffee is a associate at 7wireVentures, an funding agency that has struck gold with digital well being firms reminiscent of Livongo, Transcarent and Higi, amongst others. She doesn’t see the wave of funding slowing down any time quickly as a result of a number of funds are nonetheless properly capitalized and there’s a lot of potential on the market.
“We’ve solely damaged the ceiling on how huge these firms can get they usually’re solely getting greater,” says Jaffee. “I don’t assume the bubble speak is productive. I take a look at markets and ask, ‘What’s the worth we are able to get and what’s the worth we are able to drive?’…Once you’re constructing companies in multi-billion-dollar markets, there’s a whole lot of worth available should you can execute appropriately.”
She says, particularly, girls’s well being, behavioral well being and firms that concentrate on populations with continual circumstances might be areas to observe.
Sebastian Seiguer, CEO of Johns Hopkins-backed digital therapeutics platform, emocha Well being, says that funding availability has been large since COVID-19. Seiguer says the pandemic sparked an awakening from buyers who lastly noticed the potential to make healthcare extra environment friendly and handy. He expects it to proceed in 2022 due to the VC firms concerned with these offers.
“The VCs of the final 10 years did properly, and the bigger gamers need to get in on these extra affordable valuations that occur earlier in a funding cycle,” Seiguer says. “There have been bigger VC gamers coming into earlier rounds of funding with bigger verify sizes. That’s what’s been taking place.”
Rising consolidation is one pattern that might impression digital well being funding, Jaffee suggests. In response to Digital Well being Enterprise & Know-how’s information, there have already been 65 M&A offers within the digital well being sphere in Q1 2022, in comparison with 63 in Q1 2021. Nevertheless, the M&A deal sizes have been a lot decrease this 12 months.
Effron does count on to see consolidation as well being methods, payers and different end-users begin to want firms who provide a broader set of options. “Should you speak to an employer, there are such a lot of completely different distributors doing so many various issues. They don’t need to work with 100 completely different distributors. Well being insurers need to work with individuals who can deal with a whole lot of their sufferers,” he says. “The identical goes for well being methods.” Norden has already seen the consolidation pattern begin to occur and says it should speed up as the higher firms stand out.
“We’re beginning to see a whole lot of firms shopping for up others. There might be a shift over the approaching years in direction of worth and high quality. There are a whole lot of choices proper now as employers, well being methods (and different patrons) are overwhelmed, however I believe we’re going to see the digital well being firms that rise above the remaining and are delivering higher scientific care begin to stand out. There might be continued consolidation and a deal with that,” Norden says.