“Public markets are pretty volatile,” said Chris Bischoff, managing director at venture capital firm, General Catalyst. “The first companies in an area of healthcare that are new to the public market have the advantage of being the first companies out, but the disadvantage that investors don’t always understand their proposition.”
For instance, Bischoff said a company that relies on value-based care reimbursement, such as Oak Street Health, is going to face headwinds from investors in the public market who may not understand the business model. Oak Street’s stock is down nearly 50% from last year.
Bischoff has experienced this volatility as an investor in diabetes digital health company Livongo, which went public in 2019 at $29 per share, traded below $10 per share in September 2019 and was eventually sold to Teladoc at $140 per share in August 2020. Like Kong, he doesn’t see any company rushing to the public markets.
“The bigger and better companies in digital health are extremely well funded,” Bischoff said.
“Many ‘unicorns’ have lost their horns”
Typically, the next step for a company after it becomes a ‘unicorn,’ valued at more than $1 billion, is to go public. But so far, digital health unicorns in 2022 aren’t taking that step
Innovaccer, a software-as-a-service data aggregation company, is valued at $3.2 billion after receiving $150 million in a Series E funding round in December 2021. In an interview with Digital Health Business & Technology, CEO Abhinav Shashank said he wanted to build a sustainable, long-term growth model before considering an IPO.
Biofourmis, a virtual care management company that enables hospital-at-home initiatives, raised $300 million in a Series D funding round in April and is valued at $1.2 billion. The company’s CEO Kuldeep Singh Rajput said it wasn’t focused on an IPO.
Another digital health ‘unicorn,’ Carbon Health, is valued at $3.2 billion after a $350 million Series D funding round in July 2021. The company recently laid off 250 employees and CEO Eren Bali said it was focused on profitability.
Kong suggested the changing market has led to a shift in strategy for ‘unicorns.’ Companies that needed an IPO to raise funds must rethink how they’re going become self-sufficient. Even those who had more of a runway should think how to turn a profit if they aren’t there already.
“Many ‘unicorns’ have lost their horns,” Kong said. “They’re not unicorns anymore. A lot of companies that did a late-stage growth investment, their strategy was to do that last round before the IPO. But now because there’s no IPO, that strategy doesn’t work in terms of crossover investing in this environment.”
Despite this, Kong and others are still enthusiastic about digital health investing in a down market. In fact, HealthQuest recently closed a $675 million round and he sees it as a huge opportunity.
“This should be a really good investment cycle,” Kong said. “There are going to be great companies, the valuations will be reasonable and at some point, the market will come back. The companies that are left will be really well run and there will be great returns for companies and their investors.”