In the technology sector, entrepreneurs are often told to “move fast and break things.” But breaking things is something that won’t work in healthcare, so, as an alternative, innovators may consider “moving fast and keeping the patient in mind.”
This was one of many messages imparted to digital health company founders and other executives at the 10th Annual Rock Health Summit held last month, bringing together investors, industry leaders and entrepreneurs, both in person and virtually, for a half-day discussion of the rapidly maturing digital health space.
Fenwick was proud to co-host this year’s event, in which several of our clients participated. The firm is proud to work with leading companies, entrepreneurs, thought leaders, investors and other healthcare stakeholders who are fundamentally transforming the ways patients, caregivers, clinicians, manufacturers, payers, consumers and users connect and interact.
When Rock Health—the first venture fund dedicated to digital health—was founded roughly a decade ago, about $1 billion in investment dollars flowed into the nascent sector. That figure currently stands at $20 billion year-to-date.
And it’s not just the increase in total dollars invested, number of deals, dollars per deal and median deal size that are heating up the digital health market: there is also increased interest from healthcare’s other stakeholders in partnering with startups at various stages.
Providers, payers, pharmaceutical companies, self-insured employers, pharmacies and retailers all want to expand their digital offerings—and they want startups to play an important role in helping to make that happen.
There are unprecedented opportunities in digital health today, and entrepreneurs and investors should keep moving fast to make the most of it.
The VC Perspective
At both ends of the spectrum—from the seed-stage company to the more mature startup—life has changed dramatically for the privately held digital health company.
Newly-launched companies are experiencing investor interest and funding rounds that may have been elusive in even the recent past. Later-stage companies are preparing to join public markets where investors are waiting to eagerly welcome them.
During a panel discussion with venture capitalists Lynne Chou O’Keefe of Define Ventures, Ryan Panchadsaram of Kleiner Perkins and Christina Farr of OMERS Ventures, investors described a radically changed landscape, especially when it comes to digital health exits.
With 11 digital health IPOs and SPACs in the first half of 2021 alone and at least that same number projected for the rest of the year, the growth-stage investor and late-stage digital health startup have something going for them they never had in the past: market comparables.
The private markets are benefitting from the solid performance of newly-public digital health companies, panelists said. For the first time, public market investors and underwriters can price their deals against the value of a range of publicly traded digital health companies, something that makes it easier for them to invest in new market entrants going forward. Bill Evans of Rock Health called it the digital health “Class of 2021 phenomenon.”
The M&A landscape has also changed, Lynne Chou O’Keefe and Christina Farr pointed out. Because growth-stage companies have raised so much funding in recent times, many have not only put the brakes on fundraising, but may even begin acquiring digital health startups. This is definitely a break from the past, where public companies were the main acquirers.
All of it points to increased opportunity for digital health startups and their investors.
Healthcare’s Other Stakeholders
Healthcare delivery involves care providers, insurers, pharmacies, retailers, pharmaceutical companies and other businesses. There is good news here too for digital health startups.
In the past, big healthcare incumbents thought mainly in terms of acquiring digital health startups. Today, they are eager to partner with private companies to develop new technologies.
During the last panel session, Missy Krasner of Redesign Health, Deena Shakir of Lux Capital and Manisha Shetty Gulati of Model N talked to Sari Kaganoff of Rock Health about why this change is good for the entire digital health ecosystem.
While entrepreneurs and investors can do a lot to advance new digital solutions that will optimize healthcare for millions of people, it will take the involvement of incumbent healthcare companies to bring these innovations to patients at scale. These companies seem more willing than they have ever been to work with startups. They’re pilot testing more emerging technologies, opening up more in-house innovation hubs and raising more specialized funds to invest in innovation, the panelists said.
For these big companies, it used to be a matter of “build or buy” the technologies they need. Today, they are embracing a new model—build and buy. But more incumbents need to make digital health technologies the norm, Sari Kaganoff said.
Tech giants like Amazon and Google—some of which have made their own plays in healthcare—are in a position to push the market forward by encouraging the incumbent healthcare companies to embrace new technologies and startups. And they’re doing just that, the panelists agreed.
The COVID-19 pandemic has been the ultimate use case—and the ultimate stress test—for digital health technologies. The sector is stronger for it.
It will be interesting to see what comes next in both the private and public markets. Since health remains a top priority worldwide, it’s probably safe to say we will see more of everything, including more funding for digital health startups, more exits and more cooperation between important players in healthcare delivery.
We thank our friends at Rock Health for yet another groundbreaking and insightful summit. It brought together some of the brightest minds in digital health to discuss the exciting state of growth and innovation the sector is experiencing, benefitting investors, entrepreneurs, established providers and most importantly, patients and other end users. I can’t wait until next year’s event.
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