The novel coronavirus represents a global pandemic the likes of which haven't been seen for roughly a century, and has put enormous pressures on the healthcare system and the economy alike. To date the World Health Organization reports 209,839 confirmed cases and 8,778 deaths due to the virus. Healthcare providers and government agencies have scrambled to find ways to treat and stop the spread of the disease. Digital health has quickly come onto the world stage – with telemedicine acting as a substitute for in-person visits, and chatbots filling in for nurse triage lines. However, like the rest of the world, the industry still faces an unknown financial future.
The pandemic has also caused major economic ripples. With the bulk of shops, restaurants and bars closed in the United States, the country could be facing soaring unemployment rates within the next year. Additionally, yesterday the stock market closed at a three-year low. So what does the healthcare demand and the shaky financial footing mean for health tech startups? Mobi Health News spoke to digital health investors, stakeholders and consultants about what the coronavirus will mean for startup investment, as well as about the opportunity and responsibility to contribute to this global crisis. While the economic slowdown may be on the minds of investors, it might not be doomsday for digital health companies seeking funding just yet.
“Today VCs are investing from a pool of money they raised yesterday,” Halle Tecco, founder of Rock Health and CEO of Natalist, wrote in an email to MobiHealthNews. “They may be more cautious about the business ideas they back (and if those companies can likely withstand a downturn), but I don't think we'll see any drastic decrease in funding this year.”
However, investors warn that, with the additional pressure mounting on the healthcare system, companies looking to break into the market are going to have to prove themselves.
Julie Yoo, a general partner at Andreessen Horowitz and cofounder of Kyruus, said that companies with a B2B go-to-market strategy need a mitigation plan, as decision-making around purchases may be deprioritized.
“I think that is something that is going to force the conversation around how strong is the value proposition that you have. And what makes this mission-critical versus something that is nice to have,” Julie Yoo said. “That is a key question that we've been working with our portfolio companies on asking.”
For strategic partners, it's not just the money being spread thin, but the manpower to evaluate these tools, too.
“I think probably in the short run, deal flow will slow and I think we'll see it really start with some of the more strategic investors; the health plans, the health systems, the pharma companies making investments in digital health," Jeffrey Ries, managing director at Healthbox, told MobiHealthNews. "The reason for that in my mind is because their intention is likely going to shift to what is going on around coronavirus and it's not because they don't think it's important or at least in the short run don't have the capital to make investments. I just think once senior leaders need to get brought in [they] will get distracted.”
Reis said that while hospital systems are focused on managing the spread of the coronavirus, most startups are looking to the long game, which may not put them as a top priority for these strategic investors just yet.
“I think a lot of the companies in the market are not building tools specifically for situations like this," Reis said. "They are trying to build long-lasting solutions to fight chronic disease and improve operations. Hopefully something like this is not long lasting.” “Some digital health companies are well positioned to take advantage of the current situation while others are not. Anyone selling into providers and not addressing COVID-19-related challenges will not be able to get to their buyers for a while. Non-essential personnel aren't even allowed into hospital right now. These companies need to start thinking about adjacent markets they can sell into like payers, self-insured employers and even selling directly to patients. I do expect that some of the companies in my portfolio that currently only sell directly into hospitals will be impacted negatively and, unfortunately, some of them will not be able to pivot and will have to lay off staff,” Cartmell said.
These layoffs could mean that newly funded companies or companies meeting the needs of the current pandemic are able to snatch up new talent.
"Those companies going under have good teams or talent. Obviously the downside is the customer buying cycle is going to be lower because as the economy goes down money gets tightened and healthcare systems are dependent upon commercial business and those job markets impact margins,” Patel said.
While the market is still unsteady at the moment, traditionally healthcare has been able to weather the storm, and many are predicting digital health will as well.
“Outside of the COVID-19 issue health care is generally not recession-proof but able to withstand macroeconomic trends better than most," Patel said. "So assuming that is still the case when we come out of COVID-19 cycle the future for digital health should be pretty strong.”