Digital health startups and health systems are dealing with the worst funding environment in five years, owing to the current macroeconomic climate. While investments in digital health startups saw an unprecedented rise after the pandemic, they’re seeing a steep decline in recent months.
Experts at ViVE 2023 attribute this sudden slowdown in investments to:
Silicon Valley Bank (SVB) collapse
SVB had a significant presence in the digital health industry, holding $78.8 billion in healthcare investments and deposits. While the FDIC has taken over the bank and sold some assets to protect depositors in the short term, the Bank’s collapse has changed investors’ perception.
Venture capitalists (VCs) are now reassessing their role in the digital health industry. Private equity firms are reportedly turning to their own portfolios, while others are working on proprietary deals. Investors are concerned about long-term implications and cautious about partnering with startups that have no proven track record of generating ROI.
Investors over the FOMO in healthcare
Fear of missing out (FOMO) was the main reason behind the sudden rise in investments after the pandemic. Private equity and venture capital investors rode the wave and hoped to be a part of an industry that’s poised to generate excellent results.
However, experts say that FOMO is no longer part of the conversation. In current economic conditions, startups need to provide evidence of quality care and return on investment.
Emily Melton, the managing partner at Threshold Ventures, agreed. She said, “In recent years, VCs have focused on growth rates rather than profitability but are now looking to maximise enterprise value by focusing on companies with high revenue multiples that are cash flow positive.”
Parting words
Experts at ViVE 2023 found private equity and venture capital investors practising patience amid the current dearth of new deals. VCs are adopting a wait-and-see approach and delaying deal-making until Q4. Experts say investors face unique challenges amidst a downmarket, including the need for capital efficiency and proven unit economics for successful pitches.
Nonetheless, experts believe this cloudy weather is short-lived, and healthcare will remain an exciting space to invest in. They predict digital health investments will continue to increase over time.
