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In 2023, digital health venture capitalists predict more mergers and new startups as the industry stabilizes after a turbulent year.
The pandemic sped up the adoption of virtual care and digital tools, and high-profile acquisitions like Teladoc Health Inc.'s $18.5 billion acquisition of Livongo Health Inc. in late 2020 increased the industry's visibility.
Venture funding quickly followed this trend, with digital health startups worldwide securing $59.6 billion in 2021, nearly double the amount from the year before, as reported by market tracker CB Insights.
However, in 2022, initial public offerings slowed down, inflation increased, and investors became more cautious. Startups that had rapidly reached high valuations during the funding surge postponed new venture rounds to avoid potential valuation declines, as reported by investors.
During the first three quarters of the previous year, global digital health startups had amassed $22.4 billion in funding, as reported by CB Insights, with the full-year figure yet to be released.
In 2023, valuations are anticipated to shift due to ongoing funding constraints, with venture capitalists emphasizing closer scrutiny of business models, growth prospects, and financial performance," according to some venture capitalists.
In today's business landscape, startups need to focus on cost-effective strategies to increase revenue and achieve profitability, as emphasized by Steve Tolle, a general partner at HLM Venture Partners.
Mr. Tolle noted that for companies currently seeking funding, it's challenging if they haven't reached a break-even point and are burning through a substantial amount of cash.
In the upcoming year, more robust digital health firms are expected to explore acquiring competitors, and some investors anticipate that employees from leading companies may leave to launch their own ventures.
According to Morgan Cheatham, a vice president at Bessemer Venture Partners, the next 12 to 24 months will see a thriving environment for new company formations and seed investments.
Mr. Cheatham mentioned that individuals within these companies are contemplating whether to lead or be absorbed, or if they now feel prepared to embark on their own entrepreneurial journey.
According to Sharla Grass, a principal at Greycroft, employees from prominent digital health companies can quickly transition into entrepreneurship due to their established networks and industry experience. She also noted that despite the overall economic slowdown, there is still a strong influx of talented entrepreneurs drawn to the sector, especially at the initial stages of development.
Roger Lee, a general partner at Battery Ventures, suggested that entrepreneurs willing to take on challenging market conditions often turn out to be excellent investment choices. He further emphasized that navigating such periods typically requires founders with a greater level of resilience.
Arik Ben Ishay, co-founder and CEO of Biobeat Technologies Ltd., an Israeli firm specializing in remote patient monitoring technology, mentioned that the company has primarily sustained itself through sales since its establishment in 2016. However, they are currently in pursuit of $30 million in venture capital funding.
He expressed optimism that Biobeat's financial achievements, including an anticipated revenue surge to $20 million this year without additional venture funding, will capture the attention of investors. He emphasized that in 2023, companies with revenue and profitability are highly appealing to venture capitalists, based on the feedback they are currently receiving.
According to Shiv Rao, co-founder and CEO of Abridge AI Inc., a Pittsburgh-based startup specializing in using artificial intelligence to create summaries of medical discussions from recorded audio, startups that can demonstrate their ability to enhance healthcare efficiency and effectiveness in the face of current obstacles can distinguish themselves in the coming year.
Dr. Rao mentioned that startups that can thrive under pressure and maintain an unwavering focus on the value they provide in their offerings will be the ones to truly succeed.
In November, DispatchHealth Holdings Inc., headquartered in Denver and known for delivering hospital-level care at patients' homes, announced that it had secured over $330 million in fresh equity and debt financing. Since its establishment in 2013, the company has delivered care to approximately one million patients across the United States.
Thomas Bremner, a partner at Adams Street Partners and investor in DispatchHealth, noted that their healthcare delivery model holds particular appeal in times of inflation due to its cost-reduction focus. Additionally, it aligns with broader industry trends, including a heightened emphasis on consumer-centric healthcare.
According to Maëlle Gavet, CEO of startup accelerator Techstars Central LLC, two prominent trends in the coming year will be AI-powered diagnostic tools and preventive healthcare, particularly as employers aim to reduce costs by prioritizing employee health.
Lily Huang, a principal at New Enterprise Associates, stated that the venture firm intends to maintain its consistent investments in digital health. She emphasized that there are significant opportunities for innovation and growth in healthcare, with numerous promising companies yet to emerge and drive modernization.