Hardly a day goes by that Ranjan Singh does not obtain an electronic mail from a digital well being startup seeking to get out. He’s the co-founder of telehealth firm HealthHero – which has constructed a enterprise by buying different well being applied sciences since its launch in 2019.
“Once we began, we obtained two to a few emails [about acquisitions] a month, then it was two to a few per week, now it is each day,” says Singh. “Over the previous three to 4 months there was an enormous inflow.”
And he is not alone in pushing again on exit-hungry digital well being startups. Ed Radkiewicz, CEO of the healthcare arm of VC and PE Marcol, has additionally seen the variety of hopeful founder introductions double since late March.
Up to now this 12 months, 33 digital well being startups have been acquired or purchased out, in line with Dealroom, and with 4 months to go, that quantity will nearly actually high the 2021 complete of 35. The variety of acquisitions in 2022 could effectively find yourself win the document of 44 set in 2017 and 2018.
So why are so many European digital well being startups extra keen to amass than ever?
Regardless of rising investor jitters, funding for digital well being startups in Europe has held regular since June, however VCs have modified what they search for in a startup.
Traders centered on development within the heady days of 2021, Radkiewicz says, however profitability is now the first concern.
“Final 12 months VCs have been a bit blindsided, however now they’re saying ‘shit, we gotta have a viable enterprise,'” he advised Sifted. “Each healthcare investor talks a few path to profitability, they usually now anticipate an organization that might have been worthwhile in three to 4 years to get there in 18 months.”
That shortened timeline is usually a actual drawback for health-tech firms, which usually take longer — and more cash — to interrupt even than startups in different industries, says Elina Halatcheva, a former board member of newly acquired Woom Fertility.
“Some digital well being startups must get regulatory approval or do scientific trials, in order that they want extra capital and the time to scale is longer,” she advised Sifted. “There’s been a change of founders, they usually’re now extra open to getting out than they might have been two years in the past.”
For Woom, who was talking to numerous VCs and potential acquirers, the exterior funding surroundings performed a job within the exit plan, Halacheva says, although there are different concerns as effectively.
“Two years in the past, the dialogue would have been completely different,” she provides. “It is rather troublesome to boost funds for the time being, and though traders nonetheless have cash, it’s placed on maintain as a result of nobody is aware of how lengthy market situations will prevail. Valuations are falling and [cheque sizes] are damaged.
Personal markets aren’t the one ones which have modified in latest instances. Lots of the startups HealthHero’s Singh was approached by would have listed on public markets when the tide was excessive, he advised Sifted.
However the valuations of many listed tech firms have fallen off a cliff this 12 months. Few individuals have recognized worse than the telehealth big Babylonwhich since a $4.2 billion SPAC deal final October has seen its inventory worth plummet 95%.
Consequently, the urge for food for floating has all however dried up. Solely eight European healthcare startups have gone public this 12 months, for a complete of $1.3 billion. Final 12 months, 48 firms have been listed in offers value a complete of $33.7 billion.
Startups do not buy like they used to
Whereas some digital well being startups need to exit, these going by way of more durable instances are now not seeking to purchase.
In 2020 and 2021, consolidation was on the minds of Europe’s main digital well being startups as they sought to gobble up ever-increasing market share. Main gamers like Babylon, Kry, AlanDoctolib and doc planneralongside small digital well being startups like Zava Med, numan and Mindler, all recruited startups as they sought to increase into new market segments or geographies.
“When the market was in development mode, startups have been buying as a result of they’d funding,” says Singh, whose startup HealthHero has acquired seven extra since launching in 2019, the final in April 2021.
“However, there was an enormous shift late final 12 months in funding markets – which got here into full play this 12 months – to not finance development at any price,” he stated. advised Sifted. “Now traders need startups to point out a path to profitability, and mergers and acquisitions do not enhance the trail to profitability.”
Of these talked about above, solely Docplanner has acquired one other startup since February of this 12 months, roughly when the market began to deteriorate noticeably.
“We do not see as many startups buying different startups as a result of everyone seems to be attempting to determine how they’ll survive,” says Halacheva. “However bigger firms are extra open to acquisitions as a result of they’ve additional cash.”
So what does this imply for well being tech?
Pandemic-induced digital adoption has performed an enormous function in driving business pleasure, as regulators, practitioners and sufferers flock to distant healthcare options. In 2020 and 2021, traders wrote $6 billion in checks for digital well being platforms, greater than the earlier 10 years mixed.
And regardless of the downturn, many founders and VCs say digital well being is extra resistant to antagonistic market situations provided that well being companies are nonetheless the very last thing to be minimize from private and authorities budgets when the cords of the inventory market is tightening.
However extra exit exercise suggests some startup executives’ confidence of their potential to boost funds is waning.
“[Digital health] was a tempting alternative, however you continue to want to point out traders the trail to profitability and that you’ve got a professional enterprise mannequin,” Singh says. “The final six or seven years have been essentially the most benign funding surroundings the world has ever seen – however few firms have been so effectively thought out.”
It is extra about timing, says Halacheva, as a result of digital well being startups merely take longer to monetize. In keeping with what she’s seen out there, some well being applied sciences at the moment have almost double the income multiples of different tech firms.
“The market is quickly down and we do not understand how lengthy it would final, however the fundamentals are there.”
Kai Nicol-Schwarz is a journalist at Sifted. He covers tales about well being tech and the group, and tweets from @NicolSchwarzK.