Craig Solid, PhD’s Post

Have you seen what VCs have said about demonstrating value? In their article "How to scale a health tech business to $100 million ARR and beyond," Bessemer Venture Partners say, among other things: “We encourage portfolio companies to invest early in measuring clinical and financial ROI…clear proof of these metrics requires time and dollars invested, but will pay future dividends.” (read their full article here: https://buff.ly/3AIPto4 ) A separate article describing a survey by GSR Ventures reports that: “ROI was deemed ‘important’ or ‘very important’ to the success of digital health companies by more than 94% of investor respondents...” (full article here: https://buff.ly/47866Wq ) It is clear from these sources that a credible, quantifiable demonstration of value is extremely important to investors in health tech!!

Have you seen what VCs have said about demonstrating value? In their article "How to scale a health tech business to $100 million ARR and beyond," Bessemer Venture Partners say, among other things: “We encourage portfolio companies to invest early in measuring clinical and financial ROI…clear proof of these metrics requires time and dollars invested, but will pay future dividends.” (read their full article here: https://buff.ly/3AIPto4 ) A separate article describing a survey by GSR Ventures reports that: “ROI was deemed ‘important’ or ‘very important’ to the success of digital health companies by more than 94% of investor respondents...” (full article here: https://buff.ly/47866Wq ) It is clear from these sources that a credible, quantifiable demonstration of value is extremely important to investors in health tech!!

I recently re-read this excellent blog post by Sofia Guerra and Steve Kraus from Bessemer Venture Partners from 2023 about scaling health tech companies. There is a ton of great info and still-relevant benchmarks for both healthcare SAAS companies and tech-enabled healthcare services companies (like Pivotal Healthcare). I think the most important section of the post is Lesson #2: Your margin, your opportunity. It's a great reminder for management teams about what to focus on to really sustainably grow your business. https://lnkd.in/gwvH9dNM

"Digital health orgs interested in going public must convince potential investors that their companies will succeed where others have faltered. During the early 2020s VC funding boom, >25 digital health companies that achieved 'unicorn' valuations of >$1B had IPOs. Many of those companies have struggled to achieve profitability and have laid off employees, sold lagging businesses, been taken private or filed for bankruptcy. IPOs from digital health companies were at a near 2-yr standstill until Waystar and Tempus AI went public in June. The lack of IPO activity and public skepticism over the efficacy of some digital health tools has led many orgs to take a conservative approach to their funding alternatives. Still, there is a growing consensus among investors and industry experts that companies' need for capital and a slightly improved macroeconomic outlook could produce more IPOs in 2025. Formulating a compelling communications strategy — and doing it early in the process — to put in front of potential investors is said to be key. 'There are no great [comparisons] in digital health right now,' said Jon Swope, managing director in the healthcare investment banking group at Barclays. 'We’re back to a place where we need to communicate to investors why a pre-IPO company stands on its merits.' It's equally important to abide by the disclosure rules set for publicly held companies by the SEC. The public disclosure of finances, risk factors, operational details and info on execs and competitors can be a lift for orgs used to operating behind closed doors. Getting it wrong can expose the company and its execs to shareholder lawsuits or enforcement actions. Before Livongo went public in 2019, it developed 3 narratives, said John Hallock, who was Livongo's VP of corporate comms. The 1st revolved around how its core product saved employers money, the 2nd highlighted patient experiences and the 3rd focused on its tech and AI products. Hallock said too many companies outsource the majority of that work to PR or investor relations firms before building in-house teams. Those employees can advocate internally to board members and execs. In the years since the IPO of Livongo, which later was sold to Teladoc Health, the communications strategy for pre-IPO companies has changed, say [experts] Investors are valuing predicted revenue growth less bc they are able generate reasonable returns on companies with a clearer path to profitability. As a result, higher interest rates have led many investors to back companies with stable operations and reliable growth that likely would have been passed over in years past. [Experts] say digital health orgs are under more scrutiny by potential investors, media outlets and the public. The changing environment requires startups to balance the discipline investors value with the risks needed to position a company for an IPO. Taking a conservative approach to messaging can reduce name recognition and ultimately inhibit growth"

Bessemer Venture Partners (BVP) is one of the oldest venture capital firms, dating back to 1911. It has since evolved into a leading global VC firm, backing numerous successful Healthcare, SaaS, and deep tech companies. Insightful take from the Bessemer Venture Partners team on the key factors for scaling a HealthTech business to $100M ARR+. - Healthcare Moves Slowly – Scaling takes 10+ years due to industry complexity. - Margins Matter – High gross margins ensure financial sustainability. - Retention is Key – Customer loyalty drives long-term success. - Distribution Unlocks Scale – Strategic partnerships accelerate adoption. - Regulatory Navigation is a Competitive Edge – Compliance expertise creates barriers to entry. Check out the full article here

Black Book Highlights What’s Hot and What’s Not for 2025, VC and PE Healthcare IT Investments Survey Research #venturecapital #privateequity #healthcareit https://lnkd.in/e44hZPUc

Just over 6 years ago, buried in Rock Health's 2017 year-end funding recap, we noted that public markets were shrinking, concluding with: "For now, at least, M&A is the new digital health IPO." https://lnkd.in/gHkdg9BU Six plus years later, the public market situation hasn't really changed. For a variety of regulatory and economic reasons, the stock market continues to shrink, and as a side effect of investor-friendly innovation (i.e., ETFs), it has become less efficient at allocating capital to new things. Meanwhile, however... PE appears to have stepped in to start filling the gap. 1. Getting Smaller Net equity issuance has been NEGATIVE in all but 10 of the last 109 quarters, with over $7T in public market net equity *retired* since the Fed started tracking data in 1996. (https://lnkd.in/gZUdr-Ya) There's been fewer IPOs and a lot more stock buy-backs + acquisitions. 2. Less Efficient (at allocating capital) Passively managed funds are great for public market investors but bad for capital market efficiency (because, well, they're "passive" allocators by definition). They'll soon represent about 25% of global AUM.(https://lnkd.in/g7uzPbSW) 3. PE Steps in Contrary to public market trends, however, "buy and hold" PE continues to grow. McKinsey recently reported that as of June 2023 PE AUM hit ~$13 trillion—roughly *double* the amount just 5 years earlier, in 2018, with a record $3.7 trillion in dry powder. (https://lnkd.in/g9z3XeqA) TL;DR: The sky is not falling, but the path to liquidity has evolved considerably in recent years. Some things remain the same, however: Having a plan and executing it well is, as a founder or as a venture investor, the best most sure path to creating valuable, profitable business. And working with folks who get what you do, are mission-aligned, and want to see you succeed makes the journey that much better.

💡 "The digital health investment space is moving from irrational exuberance to reasoned investment based on business fundamentals." Investors are prioritizing business fundamentals, scalability, and measurable impact over sheer hype. This evolution highlights the critical role of our Capital Readiness Program, which empowers founders to navigate this changing landscape by refining their strategies, building strong business fundamentals, and connecting with the right funding opportunities. 📈 In today’s competitive environment, it’s not just about having a great idea; it’s about demonstrating that your startup is built to last. If you’re a founder ready to scale, don't sleep on the Capital Readiness Program - now accepting applications through January 10. MedCity News https://lnkd.in/gTSpbUPa

Digital health funding falls again in 2024: Rock Health Digital health funding dropped to $10.1B in 2024 with investors prioritizing early-stage startups and AI-enabled companies. Later-stage firms saw smaller deal sizes while M&A activity hit a decade low, signaling shifts in the sector’s dynamics.

A lot of buzz around General Catalyst today announcing a fresh $8b, with more than $1b of it earmarked for healthcare-focused companies. While GC has backed many of the largest technology companies in the US, including Airbnb, Instacart, and Stripe, it's also one of the more active investors in digital health companies, having funded over 150 companies in the space. But GC is also thinking about healthcare in new, unique and genuinely fascinating ways, which is what the US healthcare system needs desperately at the moment. - In January, 2024, GC literally acquired it's own health system, one of the largest systems in Ohio. A VC acquiring it's own Health System is deliciously ambitious. - In 2022, GC launched The Health Assurance Network, a health system + tech company think tank that gives the health systems a bridge to General Catalyst’s digital health portfolio companies. ✔️ Health Systems know they want to invest more in technology but don't know where to start. ✔️ Health Technology companies know they need to build relationships with Health Systems but often don't know where to start. Massive respect to General Catalyst. 💪 Just genuinely interesting stuff. Gabriel Perna does a bang-up job covering the news here. https://lnkd.in/ea6BGEaC