Digital Health: Countervailing Forces… Consider this: over the past five years nearly $78 billion has been invested in digital health companies and yet just this past year over 20 million Americans were taken off the Medicaid rolls. Certain policy changes can be very damaging, to say nothing of other human-induced factors like pollution, climate change, wars, inadequate housing and education, and hunger which have staggering implications on health. At times it can feel like bailing water out of a sinking ship. The overall venture capital activity in 1Q24 was a relatively muted $36.6 billion across 2,882 companies for an average round size of $12.7 million, as compared to $51.6 billion and 4,026 companies in 1Q23. Notwithstanding that the level of investment activity in the healthcare technology sector has receded from the $30 billion highwater mark in 2021 to a more manageable $10 – $12 billion annual pace, the opportunities to “transform the business of healthcare” remain obvious and acute. Arguably, the 2021 hangover still lingers in the healthcare technology sector as companies that raised too much capital at too high a price work to sort out challenging cap tables. Out of the 2021 mosh pit of too many companies, it appears that the sector is in an “Emerging Winners” phase that will drive companies with narrow and/or incomplete offerings to combine or shut down. Thoughts on what to expect for the remainder of the year… https://lnkd.in/egy7Afhg Flare Capital Partners #digitalhealth
Sam Qamar
2mo
Thoughtful analysis, Michael. Reflecting your thoughts, we don’t have a “healthcare opportunity” problem — we have an “over capitalization for poor business models” problem. The tsunami of capital has receded, and is exposing poorly built businesses gasping for more. I believe healthcare’s usual customers — payers, providers, and pharma (always a difficult sell) — will give way to opportunities with D2C. This recent report by McKinsey highlights some of those reasons. Startups building thoughtfully, patiently, and raising meaningfully and methodically are out there (I think we are one example), will surprise everyone in the next few years. https://www.mckinsey.com/industries/healthcare/our-insights/consumers-rule-driving-healthcare-growth-with-a-consumer-led-strategy
It's clear that the digital health landscape is facing challenges, but your insights continue to provide clarity and direction. Your astute observations on the impact of policy changes and human-induced factors are truly eye-opening. Keep up the great work, Michael.
It's time to create a new metric for startup investing: how much money has been made on an investment by VC firms and other private investors versus the rest. Consider this: if VCs have made, say, $200 billion from the $78 billion invested in digital health over the last 5 years, but then simply "flipped the house" by transferring these $200 billion to unsuspecting retail investors, who ultimately lost, say, $190 billion, is that genuinely benefiting healthcare? It seems to me like an old-fashioned Ponzi scheme. I'm not even bringing up the outcomes for the patients. Clearly, these are not part of the equation for VCs because those metrics don't flash shiny dollar signs. Case in point: Babylon Health. For 8 years, VCs inflated the market value of this glorified lemon from $0 to $4.2 billion. Most of them knew there was absolutely nothing beneath the shiny exterior. Otherwise, 90% of these VCs wouldn't have sold their shares of Babylon at its IPO or earlier! In only 19 months, the value of the company plummeted from $4.2 billion back to where it started, exactly $0, meaning the retail investors, who didn't know the truth, lost everything. https://www.linkedin.com/pulse/madoff-digital-health-how-lies-secs-code-silence-cost-sergei
Investing for profit vs investing for outcomes. Not hard to see why we fail faster and faster.
Sharing further granularity on Digital Health key trends outside the US: https://www.galengrowth.com/q1-2024-digital-health-insights-unpacking-global-trends/
Todd Gray
2mo
Solid insights Michael A. Greeley . I'd suggest that to much was placed on poor bets that lacked pipeline depth and a clear path forward. The hangover will pass. Next
Amish P.
2mo
Love this pov.
Thank you for sharing Michael A. Greeley. Insightful.
I build things that improve the health of millions of people
2moBy your own math, the average round raise has only dropped $100K from the Q1/23 mark you cite. I wouldn't panic about that in and of itself. Less companies raising just slightly less money (0.7%!) per round isn't a bad thing. It's a good thing in that more focused capital is chasing better quality deals. What should be alarming is the nearly two decade long trend of hundreds of billions of dollars invested into "digital health" with not much to show for it. Consider that the number of exits in this space are few & far between (Let's remove the apparition of TDOC+LVGO, which is a different universe and hasn't exactly worked according to plan, but the list of exits is quite short), the cost of health care has continued to rise ($4.3T/year & still the fastest growing cost in GDP), and most importantly outcomes in any meaningful health metric have actually lost ground over this span of time. Forget the investment returns. Most of this stuff just doesn't work. The stuff that might doesn't get to scale because of active thwarting and sabotage. Meanwhile, consumers are increasingly footing the bills by way of increased premiums, reduced levels of service, and accelerating out of pocket expenses. This is not sustainable.