For others, 2023s continued pressures might be a final nail in the coffin, with shuttered doors or acquisitions on the horizon. . End-to-end automation with human-in-the-loop AI will decrease the amount of manual administrative work, decrease staff burnout rates, and increase patient access to medication in healthcare., Ogi Kavazovic, Cofounder and CEO, and Tesh Khullar, Cofounder and President, HouseRx: Further consolidation in specialty pharmacy space, likely led by PBMs acquiring specialty pharmacy competition, which once again will result in fewer patient options and a suboptimal patient experience.. We need better integration of clinical models to enable the treatment of comorbid conditions, such as Diabetes and Major Depressive Disorder. Tech, Trends and Valuation. Supply chain challenges, inflation, interest rate hikes,3 and investor pullback reversed investment momentum. They are beginning to place a premium on benefits that support diversity, equity and inclusion, as well as employee satisfaction and productivity. Lyra hit unicorn status in 2020 in a pandemic-fueled funding round, and Modern Health, BetterUp and Ginger . Ambitious hospitalathome initiatives were launched to free up hospital beds, allow top of license practice, and reimagine care pathways. HealthTech 2022 Valuation Multiples. While twelve months ago there was a relatively stronger emphasis on top-line growth or 'growth at all costs,' we now see a stronger focus on profitability. December 7, 2022. Launched two years ago, the startup netted $300 million in a Series C round in December, increasing its valuation to $4.8 billion. | The more restrained digital health . interest rate hikes that cozied us up to the possibility of recession. Investors can apply to join syndicate and invest in our deals here. However, that field is under some scrutiny. To be clear, we dont believe only hybrid-care companies will succeed, rather we believe digital-only companies will bridge the pre existing healthcare system to support a hybrid care delivery model. Looking forward, the publisher expects the market to reach US$ 881 Billion by 2027, exhibiting a CAGR of 20.14% during . Though a source of some internal controversy, it is nonetheless Rock Healths official position that both unicorns and horses share the genus. Although we continue to see red-hot valuations in the mental health space, I have to wonder, when will the re-rating of earnings in the public market impact private markets? The behavioral health industry is coming off a record number of transactions and as multiples remain high, companies are having to get smarter about . Nothing in this website is intended to be or should be construed or taken as accountancy, investment, tax or any other kind of advice. Get in touch! What is occurring in the public markets, and how do these developments impact startups and VCs in the digital health and mental health markets? Google returned to its roots and unveiled several medical search initiatives for clinicians and consumers. This may involve platforms for career development, benefits, and inspiring company culture and values. Strategic healthcare M&A rebounded in 2021 from a down year in pandemic-ravaged 2020, with volume up 16% and total deal value rising by 44%, to $440 billion. Registered address: Spaces, Mappin House, 4 Winsley Street, London W1W 8HF. Representative agent in Switzerland Waystone Fund Services (Switzerland) SA, Avenue Villamont 17, CH-1005 Lausanne and paying agent in Switzerland: DZ PRIVATBANK (Schweiz) AG Mnsterhof 12, PO Box, CH-8022 Zrich. As detailed in Rock Health's annual year-end report, digital health funding among US-based startups soared to a record $29.1 billion across 729 deals in 2021, nearly doubling the prior year's . Despite CMS announcing their intent to maintain reimbursement for select video-and-audio-only services through 2023, we saw a drop in the number of visits and declining satisfaction across consumers with telemedicine in 2021. In January: The sectors that experienced the highest growth were Consumer Directed Health/Wellness (up 8.5%), Assisted/Independent Living (up 2.6%) and Distribution (up 1.0%). Prospectus, the key investor information document ("KID"), the management regulations and the semi-annual and annual reports. As you can see from our index of disruptive healthcare peers, the group has been drastically underperforming the broader S&P 500 over the last 12 months leading into January 2022. For information on opportunities and risks as well as tax information, please refer to the current detailed sales prospectus. Given the current economic situation, its possible that consumers will spend even more conservatively in the months aheadwhich means that macro headwinds for D2C wont be relenting. It has been a rough year so far for digital health. By 2028, it's expected that this number will reach $720.44 billion, with a CAGR of 25.25% during the forecast period of 2022 - 2028. We expect to see a record number of acquisitions as large digital health companies, both public and private, recognize the need to add mental health to their offerings to deliver comprehensive care., There has been much debate about the tension between DTC companies doing good by expanding access or doing harm by scaling irresponsibly. Last years efforts to diversify revenue streams saw Big Tech players building up businesses in data infrastructure, analytics, and finance, not to mention taking on the challenge of healthcare innovation in earnest. In the second half of 2021, the trailing 12-month median EV/S multiple was 5.6x up from from a 3.6x the previous half-year and around 3x the year prior. This holds true within the mental health space and largely within the digital health startup landscape. This represents a 46% increase on 2021 numbers, and a whopping 70% increase on pre-pandemic (2019 . In the early innings of retail care, questions were raised about the quality of care being delivered; however, access-related benefits for patients and heavy internal and external investment activity suggest that care delivered in the retail setting is here to stay. Only one company, Amwell, has analysts who believe that their revenue will be lower in one year than it is now. However, these investments are critical in healthcare and we believe will become long-term competitive moats for those companies that make them early in their life-cycle and prove real differentiation in terms of patient outcomes. Bellevue SICAV: The Bellevue Funds (Lux) SICAV is admitted for public offering and distribution in Switzerland . Healthcare VC fundraising hit nearly $22B in 2022 second only to the record set in 2021 with an unprecedented amount raised in the first half of 2022. Let's do the math with a real . What is the right multiple? Refreshingly simple financial insights to help your business soar. Decreasing EBITDA multiples paired with growing Revenue multiples are not necessarily bad news: in fact they could be a sign of companies within the sectors widening their profit margins. The great resignation poses a breaking point for the supply of clinicians, 5. However, we believe that a highly selective portfolio of fast-growing, transformative and disruptive companies offering digital technologies that improve healthcare services and systems while lowering costs can quickly bounce back from short-term stock market trends. The most impactful findings of the "2022 RIA Deal Room" report include: Eye-opening valuations and a flattening curve. . Some studies even estimate that 30% of the remaining healthcare workforce are considering leaving their full-time hospital jobs in the next two years. HGP Releases its July 2021 Semi-Annual Digital Health Market Review July 22, 2021. Of course, no one knows, but we take the Investing in early stage mental health and addiction solutions. Whats 2022s takeaways for MAMAA, other Big Tech players (e.g., Netflix, Nvidia, Samsung), and middle children? While we may see some of the valuation gaps between public and private markets narrow in 2022, we continue to be optimistic that the IPO market will remain open and create more opportunities for M&A in our industry. Similarly, we have seen a dramatic shift in market valuation multiples for digital health companies. Prospectus, the key investor information document ("KID"), the management regulations and the semi-annual and annual reports are available free of charge in German from Bellevue Asset Management (Deutschland) GmbH, your advisor or intermediary, the paying agents, the responsible depositary (UBS Europe SE, Bockenheimer Landstrasse 2-4, D-60306 Frankfurt am Main) or from the management company Universal-Investment-Gesellschaft mbH, Theodor-Heuss-Allee 70, D-60486 Frankfurt am Main, https://www.universal-investment.com. Please join the conversation and dont forget to introduce yourself when you join. In late 2021 and early 2022, what went up started to come down. Germany: information agent: Zeidler Legal Process Outsourcing Ltd., SouthPoint, Herbert House, Harmony Row, Grand Canal Dock, Dublin 2, Ireland. These can be obtained free of charge in German from Bellevue Asset Management (Deutschland) GmbH, your advisor or intermediary, the paying agents, the responsible depositary (UBS Europe SE, Bockenheimer Landstrasse 2-4, D-60306 Frankfurt am Main) or from the management company Donner & Reuschel AG, Ballindamm 27, 20095 Hamburg, https://www.donner-reuschel.de. H2 2021 averaged $7.1B in quarterly funding, a small decline from the first half of that year. ACCESS ROCK HEALTHS 2022 RECAP SLIDES HERE. Despite COVID-19 becoming endemic, we will continue to see the lasting impact of this infection and how it structurally and holistically changes the industry indefinitely. The financial products mentioned on this site are not suitable for all investors. Multiples dropped in four of the seven sub-sectors whose multiples we track, led by outsourcing (down from 19.2x to 15.0x) and managed care (down from 17.3 to 14.2). If I were the CFO of a startup today, I would be preparing to extend my fume date as long as possible and survive what feels like a pending capital access contraction. The COVID-19 pandemic catalyzed digital health innovation, investment, and regulatory reform throughout 2020 and 2021. Many startups were benchmarking to that valuation when they raised money in our space at 20x and even 40x ARR (or higher). Investment or other decisions should not be made solely on the basis of this document. 3.5 to 3.9 times: 15 percent. Some players differentiated through new features, product category expansions, and forged partnerships to enhance consumer value. As an investor, Im starting to anticipate that great deals will once again be available, at better prices. Be sure to check out Rock Health's Digital Health Funding Report. Update your browser to view this website correctly. As a cherry on top, burnout pushed record numbers of clinicians to retire or work fewer hours, which kept health systems in crisis modeand paying crisis wages. Take a look at the above chart which shows the average EV/NTM Revenue multiple for the peer group. [15] VALUATION The three most common valuation approaches - the Income, Market and Cost Approaches - can all be applied when valuing a physical therapy practice. We saw a record of more than 30 IPOs and 80 mergers and acquisitions. As weve shared before, some of 2022s missing mega deals stemmed from growth-stage digital health companies reluctance to raise in this market environment for fear of the dreaded down round. We also expect M&A activity to pick up significantly. This tells me that analysts believe the operating environment for companies in our space will continue to be at least good, if not improving. An example was seen in early 2022 when Stryker issued a takeover bid for Vocera, a leading provider of communication software and hardware for hospitals. The numerator is going to be a measure of value, such as equity value or enterprise value, whereas the denominator will be a financial (or operating) metric. Finally, stay up to date with the latest headlines in healthcare technology and Rock Health news by subscribing to the Rock Weekly. The value of revenue is being re-rated by the markets as the macro capital environment tightens. Many Digital Health companies are now at a much more advanced stage of business maturity, their business models have been firmly established, and their path to profitability has gained visibility. The EBITDA multiple will depend on the size of the subject company . Also, J.P. Morgan Healthcare Conference was very positive with some companies already giving pro-active guidance of their results after being challenged by investors worried over Covid-impact. Health systems also established partnerships as first steps into new revenue or equity pathways, shaking hands with venture capital teams like General Catalyst and a16z to establish digital health startup pilot sites on hospital campuses. As an example, when we set out to build Clearing 1.5 years ago, we developed an EMR in-house because legacy systems were too inflexible to meet our needs. The information contained on this site does not constitute a financial, legal, fiscal or any other recommendation. As we redesigned GI care into a patient-centered, value-based model, we recognized that our virtual care supports many important clinical needs, but we also needed to bridge our services with in-person care like colonoscopies and diagnostic tests. More on the Digital Health funding landscape can be found from Rock Health and Startup Health. Revenue is increasing, so why are stock prices going down? Founders can reach out via this form, or you can email us via info (at) whatif(d0t)vc. Ulili Onovakpuri, Managing Partner, Kapor Capital, Investors interested in strong horses spent 2022 scoping out earlier-stage opportunities. The share of HCIT deals held steady at around 15% of overall . Equity capital investors have already invested about USD 84 bn in 3800 privately held digital health firms since 2011, so we expect a steady stream of attractive IPOs in the coming years. For this reason, data quoted in this piece may differ from prior Rock Health pieces due to updated information in our databases. Ultimately, virtual care companies will be early adopters of these new tools and as they scale, help transition the pre-existing ecosystem away from legacy platforms. Health tech grabbed a serious share of the attention. Valuation Multiple = Value Measure Value Driver. Stephen Hays, Founder of What If Ventures www.whatif.vc a mental health focused venture capital fund and host of the Stigma Podcast. When expanded it provides a list of search options that will switch the search inputs to match the current selection. As Avi Dorfman, founder and CEO of Clearing told us: As telemedicine becomes increasingly mainstream, digital infrastructure companies with turnkey offerings will emerge, enabling entrepreneurs to focus product & engineering resources on the creation of personalized patient experiences. Sectors ranging from telemedicine to medical devices to AI healthcare all raised record-high funding. The management company may decide to cancel the arrangements it has made for the distribution of the units of its collective investment undertakings in accordance with Article 93a of Directive 2009/65/EC and Article 32a of Directive 2011/61/EU. We would love to hear from you. The EV/Sales multiple of the Bellevue Digital Health fund portfolio is currently under the long-term range of 6-10x, and about 40% lower than it was 12 month ago. Denominator: Value Driver - i.e. Revenue valuations have come in. The EV/Sales multiple of the Bellevue Digital Health fund portfolio is currently under the long-term range of 6-10x, and about 40% lower than it was 12 month ago. Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. The most successful companies in this infrastructure category will enable virtual care companies to go to market quickly, be flexible to evolve as companies grow, and integrate seamlessly with other tools and API platforms. In all other countries, the funds may, if any, via "Private Placement" according to the local applicable laws. If I just raised a huge round at a massive valuation, I would certainly be trying to grow, but I would have one eye on pure survival as well. Navid Farzad, Partner, Frist Cressey Ventures. We recommend individuals and companies seek professional advice on their circumstances and matters. A few months ago, it was detrimental for a digital health startup to say it was profitableit implied the company wasnt growing fast enough. May 9, 2022 2. performing companies, the valuation premium is much higher. The value of investments may be subject to fluctuations and, under certain circumstances, investors may not get back the full amount invested. Disrupting healthcare isnt as effective as targeting transformation opportunities in tried-and-true operational fieldsa lesson Big Tech learned all too well. FinTech M&A Market: Trends, Deals & Valuation Multiples. Why does this matter? Equity Multiples. Other cookies to personalize content and analyze access to our website are only set with your consent. And while these companies did not perform as well in the public markets in 2021 as in prior years, we are confident that the overall basket of digital health assets is more mature and valuable than ever before. In short, we do not have the answers. Especially for young D2C digital health entrants that needed to invest heavily upfront to establish brand recognition and consumer leads, last years unfavorable macro conditions raised roadblocks for market penetration. For example, Zaya Care uses this model in the maternal health space. 80 people interested. Rock Health Advisory provides guidance on digital health strategy, access to proprietary funding data, and in-depth perspectives on the digital health market. Last year we predicted that the commoditization of telemedicine would unlock holistic virtual care. Braff said that services-based businesses, like the mental health segment, would normally sell for a valuation range of 4x to 6x of EBITDA, earnings . Not only did 2022's annual funding total come in at just over half of 2021's $29.3B 2, but it also just squeaked past 2020's $14.7B sum. Rather than aiming to disrupt the entire healthcare system, focus is best placed on applying practiced skill sets to top healthcare and research problems. These can be dependent on: Customer profile and purchasing patterns. By JEFF GOLDSMITH and ERIC LARSEN. For example, Amazon now has built an omnichannel experience between online, prime delivery, and wholefoods shopping experiences. The funding slowdown was especially severe in the second half of the year, with Q4'22 funding clocking in at $10.7bn the lowest quarterly level . 2022's total funding among US-based digital health startups amounted to $15.3B across 572 deals, with an average deal size of $27M. HealthTech the use of technology to deliver or improve clinical health services to patients was one of the most active and growing industries of 2020. Teladoc Health is a pure-play tech-enabled disruptive healthcare peer that was recently trading north of 20x forward revenue. Similarly, we have seen a dramatic shift in market valuation multiples for digital health companies. The increased acceptance of digital solutions in the wake of the pandemic has pushed up the potential growth trajectory of the Digital Health investment case. 2. We also share information about your use of our website with our social media, advertising and analytics partners. Health systems also took steps to shift toward care models that decrease operational burden. The sectors that experienced the largest decline were . We believe that companies with deep clinical services alongside therapeutic regimes will become enduring care models for patients and establish market leadership in the long term. The average revenue multiple for small tech companies increase slightly as their market cap increases, from 2.2x to 2.6x. 2022 Spending Benchmarks for Private B2B SaaS Companies. These investments in people, processes, and protocols are one of the reasons why best-in-class healthcare companies tend to have lower gross margins than their software counterparts. However, if capital flows begin to tighten as capital access tightens, we could be in store for a sharp pullback in startup valuations as well. The price-to-revenue multiple for critical access hospitals was 0.52x, and the average price . More than $26 billion dollars were invested across almost 700 US health tech companies at soaring valuations (up from $14.6 billion across 464 companies in 2020). We therefore recommend that you check this statement regularly. It is explicitly stated, that alternative fund products are not allowed for public distribution in any country and that they may only and exclusively be solicited to institutional and qualified private investors according to the applicable local laws of each country. The performance data are calculated without taking account of commissions and costs that result from subscriptions and redemptions and commissions and costs have a negative impact on performance. However, 2022 didnt go as well for D2C digital health players, with only 37% of the digital health companies that raised in 2022 selling directly to consumers, compared to 43% in 2021.5 Not to mention, D2C stocks felt crushing pressure in the public marketsand not just in the healthcare industry. In addition to taking traditional expense reduction efforts and charging new fees, hospital systems evaluated nonclinical and clinical workflow improvements to unlock efficiency gains and reduce provider pain points at work. 2 FinSA, Professional/Institutional investors: according to Art. In 1H 2022, US-based health IT companies raised $9.4B, which is 40% below 1H 2021, but still 46% higher than the amount of investment seen in 1H 2019 (see the chart . Changes in foreign-exchange rates may also cause the value of investments to go up or down. Funding for this value proposition earned third place in 2022 ($2.2B), jumping from seventh place in 2021. At one point, the group traded at 15.4x NTM revenue and most recently traded at 4.6x NTM revenue. After initial successes in automating back-office operations, leaders are now extending automation to the area of care operations all operations involved in the delivery of acute care, including management of discharge planning, or access, system-wide patient flow, and more, as well as processes that connect patient care beyond the hospital., Jonathan Wang, Co-founder and CEO, and Mark Kalinich, Cofounder and CSO, Watershed Informatics: The progression of life sciences digital transformation will drive large investments in computational infrastructure., Joy Liu, Co-founder and CEO, and Joy Patel, Co-founder and CTO, Plenful: Automation and AI will play a growing role in specialty pharmacy operations in 2022, spurred by increases in limited distribution drugs, growing staffing challenges, pressure to differentiate on better patient experience, and novel purpose-built technology for pharmacy operations workflows. Stephen Hays, Founder of What If Ventures www.whatif.vc a mental health focused venture capital fund and host of the Stigma Podcast. Report How much do SaaS companies spend on customer support or marketing? In 2023, the average EBITDA multiples for software companies also plummeted compared to 2022 . 2 to 2.9 times: 8 percent. Oops! The number of startups in digital health will increase even faster next year as entrepreneurs jump into the fray out of sheer frustration that our pre-existing healthcare system, despite the learnings from COVID, doubles down on old strategic plans and the traditional fee for service system which has proven time and again to neither lower cost nor improve quality, said Ming Jack Po, Founder and CEO of Ansible Health. Our most recent investment, HouseRx, is helping independent physicians in a different way by enabling doctors to run medically integrated dispensing of specialty drugs and helping them connect therapeutics with care journeys, which will ultimately be better for patient adherence and outcomes. I also believe that this valuation trend is just now beginning to pressure private market valuations. But the principle driving revenue multiples is that startups of a particular industry operate in similar . As of November 15, the average multiple across health services sub-sectors was 14.4x, down from 15.9x as of December 31, 2021 and 14.9x as of December 31, 2020.