About What If Ventures What If Ventures exists to invest in mental health and digital health focused startups. Multiples expected to hold strong in 2022. Funding for Digital Health Companies has continued to grow year on year. We need to find ways to help health systems reduce admin burden and free up clinician time. 2021 saw a record-breaking number of new companies and newly minted unicorns leveraging telemedicine as a tool to deliver care virtually. As investors competed to back early-stage prospects, Series A deals got bigger than ever before. In fact, the group is down 50% versus the S&P 500, which is up 10% during that period. David Medvedeff, CEO of AspenRx said, We expect more clinicians like our pharmacists to seek platforms and tools that allow them to independently operate, have more flexible hours, and most importantly, empower them to provide meaningful care aligned with what drove them to be in this profession.. 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. We see three prominent themes emerging: Lastly, the siloed nature of care doesnt only exist between the virtual and the physical world, it also exists among specialties. Investment Company/Closed Ended Equity Funds, European Equities - Entrepreneur Strategies, Bellevue Emerging Markets Healthcare (Lux), Specialized Regional & Multi Asset Strategies, Bellevue Sustainable Entrepreneur Europe (Lux), Bellevue Entrepreneur Swiss Small & Mid (Lux), Emerging Markets Healthcare sector comeback, We expect M&A activity to increase in the coming quarters., Healthcare Observer: Major breakthrough in Alzheimers treatment, Regional healthcare strategies: China in focus. You can read more about his story here. performing companies, the valuation premium is much higher. However, we are certainly preparing for any outcome. What does this mean for startups? Notably, 2022's year's Q4 $2.7B total was less than half of last . We would love to hear from you. Employers have begun to acknowledge that increasing access to care requires both a refactoring of existing insurance policies, coupled with investments that quantify and deepen LGBTQ+ specialization in provider networks. For example, the short supply for full-time clinicians has increased wages for per-diem and travel nursing and Allied Health 3x in 12 months, furthering a negative spiral of nurses quitting full-time jobs to access more flexible hours and higher wages. Overall, U.S. digital health funding scraped by with $15.3B, underperforming 2021s pot and just beating out 2020s total. The EBITDA multiple will depend on the size of the subject company . Prospectus, Key Investor Information Document (KID), the articles of association as well as the annual and semi - annual reports of the Bellevue Funds under Luxembourg law are available free of charge from the above mentioned representative, paying, facilities and information agents as well as from Bellevue Asset Management AG, Seestrasse 16 , CH - 8700 Kusnacht. Last year, we talked about the critical role that Advanced Practice and Ancillary Providers (APAPs) would play in clinical teams. We expect that the market will place . The great resignation poses a breaking point for the supply of clinicians, 5. 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 . Companies like Headway and Alma have proven successful in helping providers, who historically only took cash pay, access insurance coverage and therefore increase their patient census. Of course, no one knows, but we take the Valuation Multiple = Value Measure Value Driver. For example, in mental health, the massive uptick in need has driven a huge amount of activity and access, however clinical and financial outcomes remain opaque. Instead, the developer teams at virtual care companies should rely on a series of API platforms and tools to build their technology stack. We believe that digital health solutions that can address and service these ESG or social aspects in the employer-psyche will stand out from the noise in the employer channel. As Chief Clinical Officer of Healthspace Health Dana Udall said, The system has mounting costs associated with untreated or poorly managed conditions, and ongoing siloed nature of care. Disrupting healthcare isnt as effective as targeting transformation opportunities in tried-and-true operational fieldsa lesson Big Tech learned all too well. The best healthcare entry points exist where teams already hold expertise (fertile ground remains in these familiar pastures). As a cherry on top, 2021 saw the Fed underestimate percolating inflationary concerns and extend monetary easing measures, inflating asset prices and valuations. Intertwined with the public health emergency, government stimulus measures contributed to an artificially depressed cost of capital in 2020-2021, encouraging investors to make bigger and riskier bets in emerging areas like digital health. Not to mention, conservative VC activity shortened cash runways. Equity Multiples. What is occurring in the public markets, and how do these developments impact startups and VCs in the digital health and mental health markets? Refreshingly simple financial insights to help your business soar. What is the right multiple? registered) but not authorised in the UK, the UK Financial Services Authority's financial services compensation scheme does not apply to investments in the fund but the Financial Services Authority regulated firm approving this document for the purposes of UK regulation has taken reasonable steps to satisfy itself that Bellevue will deal in an honest and reliable way and is so satisfied. 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 . We also expect M&A activity to pick up significantly. Similar to the transition that ecommerce and retail industries had over the last 20 years. In 2022, the strained supply of clinicians in healthcare is likely to be exacerbated. The days adjusted same-facility revenue in the fourth quarter increased 10.7 percent from that of 2021. In late 2021 and early 2022, what went up started to come down. Enterprise value = Market value of equity + Market value of debt - Cash . You can also find us on twitter and LinkedIn. 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 . It is a 2 day event organised by Riverstone Training and will conclude on 14-Oct-2022. In 2022, the rate of decline accelerated: H1 2022 averaged $5.2B in quarterly funding, and in H2 2022 average quarterly funding fell to $2.4B. I was slightly curious regarding whether or not equity research analysts believed that the operating environment would deteriorate over the coming 12 months. Numerator / Denominator = Ratio = Business Value / Business Metric = Multiple. The average price-to-EBITDA multiple for hospitals was 9.5x in 2011, a 4.4 percent increase from 2010. Using this category of valuation multiple indeed has its merits; however, it is also important to note the loopholes as well. LGBTQ+ people are a large and growing part of the workforce, with 1 in 5 Gen Z identifying as LGBTQ+. For digital health insights targeted to your needs, drop us a note. Several D2C digital health equities including Peloton (-78%), Owlet (-79%), and Beachbody (-78%) ended the year at fractions of their 2022 opening prices. While twelve months ago there was a relatively stronger emphasis on top-line growth or 'growth at all costs,' we now see a stronger focus on profitability. In particular tax treatment depends on individual circumstances and may be subject to change. In 2022, HR Benefits leaders will feel heightened pressure from their finance departments to demonstrate the value of these point solutions. Looking forward, the publisher expects the market to reach US$ 881 Billion by 2027, exhibiting a CAGR of 20.14% during . All but one company have rising revenue expectations on the whole across all analysts. The median check size for Series A deals reached an all-time high of $15M in 2022, while median deal sizes shrunk across all other later deal stages.4. Mental Health Startup Community Slack Channel We have created a slack channel for founders, investors, and supporters of the mental health startup ecosystem. The answer is valuation. Be sure to check out Rock Health's Digital Health Funding Report. Similarly, we have seen a dramatic shift in market valuation multiples for digital health companies. Exit, Investment, Tech and Valuation. At one point, the group traded at 15.4x NTM revenue and most recently traded at 4.6x NTM revenue. Several companies in this category have grown during 2021, including Truepill, which has become a best-of-breed API for pharmacy fulfillment and Wheel, which is a leading clinician matching marketplace. UCM Digital Health Valuation & Funding. Pharma and biotech M&A will continue to focus on oncology and immunology, but other areas such as central nervous system and cardiovascular diseases as well as vaccines will see interest. Fund documents Bellevue Entrepreneur Switzerland. 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. Get in touch! Finerva is a trading name of Lydford Advisory Limited, a company registered in England and Wales, number 08655612. The McKinsey Global Institute estimates the costs saved could lie anywhere between $1.5 trillion and $3 trillion a year by 2030, thanks to a range of interventions such as remote monitoring, artificial intelligence, and . Drivers toward this cycles crest in mid-2021 have been well documented. Depending on your domicile and the investor type that you select, you will have full or restricted access to the information due to legal reasons. By JEFF GOLDSMITH and ERIC LARSEN. There are some companies we can point to that are similar in how they generate revenue, who their customers are, as well as their growth rates and margins, but it is almost always impossible to find the perfect pure-play comp. 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. Q4 2022: How did the Swiss valuation parameters and the European M&A volume develop? In Q4 2022, FinTech companies in the SEG Index recorded a median EV/Revenue multiple of 5.4x, less than half compared to pre-pandemic levels. While global M&A has suffered in 2022, the Fintech sector saw M&A activity rise sharply this year, with 591 deals recorded in the 2022. Moreover, pure-play telehealth and mental health companies have underperformed not just the market, but also the peer group (see the chart below). Further information on investor rights can be found on the Management Company's website (https://www.universal-investment.com). 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. Seizing the opportunity, startups in the on-demand care space like TytoCare emphasized their role to play in hospital-at-home programs. Increasingly, benefit managers are now looking at social factors as well when making purchasing decisions. The price-to-revenue multiple for critical access hospitals was 0.52x, and the average price . Many startups were benchmarking to that valuation when they raised money in our space at 20x and even 40x ARR (or higher). Lyra hit unicorn status in 2020 in a pandemic-fueled funding round, and Modern Health, BetterUp and Ginger . The multiple has been sliced over the last year. At one point, the group traded at 15.4x NTM revenue and most recently traded at 4.6x NTM revenue. : Similarly, we have seen a dramatic shift in market valuation multiples for digital health companies. Health systems 2022 innovation grace under pressure is noteworthy and sets a precedent for other major healthcare companies facing less difficult, but nonetheless challenging situations. All but one company have rising revenue expectations on the whole across all analysts. The behavioral health industry is coming off a record number of transactions and as multiples remain high, companies are having to get smarter about . Heres the invite link. 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 the current VC climate, strong horses will beat out unicornsthough investors run the risk of betting on the wrong equine. Interestingly, the average round size in 3Q20 was $41.2 million, greater than the year-to-date . In 2023, the average EBITDA multiples for software companies also plummeted compared to 2022 . As the digital health field becomes more crowded, clinical outcomes will become a key competitive differentiator, 4. These new companies are great examples of the new breed of digital MSOs serving the independent practitioner. Investment decisions make use of equity multiples especially when investors look to acquire minor positions in companies. 2021 was huge for health tech2022 may be bigger. Emerging new platforms and tools are helping clinicians become more independent and run successful businesses by enabling flexible hours, additional revenue streams, or owning their audience. The information and services provided on the sites are not intended for offer to or use by legal entities or natural persons in legal jurisdictions or countries in which the offer or use thereof would violate local legislation or legal provisions, or in which business units forming part of Bellevue Group would be subject to registration requirements in such jurisdictions or countries. I believe that the right valuation multiple is above where the market is now (likely in the 7x to 10x forward revenue range broadly with some upside exceptions). Notably, 2022s years Q4 $2.7B total was less than half of last years Q4 raise ($7.4B). However, these new virtual care clinicians now have multiple options. In this period of difficult economic changes, much of digital healths up came down (see: unicorn stumbles, big ticket IPO tanks). In the digital health space, it is much more likely to be acquired than go public. 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. 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. By Peter Micca, partner, National Health Tech Practice leader, and Neal Batra, principal, Deloitte & Touche LLP. While mental healthcare . 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. Fund documents Bellevue Funds and Bellevue Healthcare Strategy, Prospectus, Key Investor Information Document (KID), fund contract as well as the annual and semi - annual reports of the Bellevue Medtech and Services fund established under Swiss law in the category "Other Funds for Traditional Investments" are available free of charge from : Switzerland : Swisscanto Fondsleitung AG, Bahnhofstrasse 9 , CH - 8001 Zrich or Bellevue Asset Management AG, Seestrasse 16 , CH - 8700 Kusnacht. We need better integration of clinical models to enable the treatment of comorbid conditions, such as Diabetes and Major Depressive Disorder. But the principle driving revenue multiples is that startups of a particular industry operate in similar . 23 M&A activity for cell towers is higher than data . They are beginning to place a premium on benefits that support diversity, equity and inclusion, as well as employee satisfaction and productivity. The sites are intended exclusively for use by legal entities and natural persons having their registered office or residing in countries in which the investment funds or the related subfunds or share classes of the Bellevue Group have been properly licensed or approved for publicoffer or sale in accordance with the applicable local legislation. Where will the market settle? Legal entities or natural persons to which such prohibitions apply must not access or use these sites. There remains, however, a huge disparity between the M&A and the fundraising markets, with most buyers of these start-ups opting for early-stage acquisitions. The first half of 2020 has seen unprecedented digital health activity: record levels of venture funding of $5.4 billion 1 ; megadeals, such as Teladoc Health's $18.5 billion acquisition of Livongo; and accelerated virtual care delivery, such as telehealth and remote monitoring. This marked a reversal in capital concentration (a funding environment where late-stage companies attract a disproportionate share of total dollars invested), a phenomenon prevalent in digital health from 2019-2021. 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. The front-and-center focus on efficiency gains boosted investment for nonclinical workflow solutions. 3. Where will the market settle? 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. In part a response to COVID-19, investors have poured $4.0 billion this past quarter into 97 digital health companies (per Rock Health), suggesting that this sector will likely see more than $12.0 billion invested in 400 companies for the year. Lets dig in. 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.. I was slightly curious regarding whether or not equity research analysts believed that the operating environment would deteriorate over the coming 12 months. 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). There are some companies we can point to that are similar in how they generate revenue, who their customers are, as well as their growth rates and margins, but it is almost always impossible to find the perfect pure-play comp. Lifestance Health Group is the only pure mental health comp that I can find. The information contained on this site does not constitute a financial, legal, fiscal or any other recommendation. 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. 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. The value of investments may be subject to fluctuations and, under certain circumstances, investors may not get back the full amount invested. Finally, stay up to date with the latest headlines in healthcare technology and Rock Health news by subscribing to the Rock Weekly. Join our community of 3,000 + Founders, Entrepreneurs & Advisors. Past performance is not an indication or guarantee of the future performance of the investment. I suspect that as long as investors are seeking yield, then moving further down that risk spectrum into the private markets, valuations in the startup world will not come in. 2021 was an unprecedented year for digital health. 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? Forty-five percent of provider organizations reported accelerating their software investments in 2022 to streamline operations. For information on opportunities and risks as well as tax information, please refer to the current detailed sales prospectus. 2022. Only one company, Amwell, has analysts who believe that their revenue will be lower in one year than it is now. While the sector was expanding before COVID-19, the pandemic has caused a critical acceleration toward digitalising systems, with HealthTech solutions booming. The value of revenue is being re-rated by the markets as the macro capital environment tightens. We saw a record of more than 30 IPOs and 80 mergers and acquisitions. 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. As access gaps are filled, quality will become the new focus, said CEO Colleen Nicewicz of Groups Recover Together. Deal Type Date Amount Raised to Date Post-Val Status Stage; 5. 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. Moreover, pure-play telehealth and mental health companies have underperformed not just the market, but also the peer group (see the chart below). This holds true within the mental health space and largely within the digital health startup landscape. The answer is valuation. Investors and . Join our community of 3,000 + Founders, Entrepreneurs & Advisors. Disclosed value also surged from $15.1 billion to $38.1 billion. Revenue multiples for B2B SaaS companies declined rapidly throughout 2022, with median multiples for Q4 below pre-pandemic levels, at 5.8x. Equity capital investors have already invested about USD 84 bn in 3800 privately held digital health firms since 2011, so we expect a steady stream of attractive IPOs in the coming years. Providers like nurse practitioners, physician assistants, health coaches, nutritionists, counselors, and pharmacists have served as critical providers in the healthcare system given the physician shortage and the high cost of hiring a large physician team. The global digital health market reached a value of US$ 289 Billion in 2021. Coming out of 2021's breakthrough year, digital health funding slowed in the first quarter, signaling potentially choppy waters ahead for investors in 2022. When we broadly examine what we call the Disruptive Healthcare peer group to get a sense of what is happening in public markets, this may translate into insights about our market, which is at the intersection of digital health and mental health. I also believe that this valuation trend is just now beginning to pressure private market valuations. Given that deal size generally tracks to valuations, its fair to infer that the median Series A deal valuation is likely at or near all-time highs. Finally, its important to draw boundaries between conflicting business unitsprobably best to steer clear of mixing healthcare and consumer marketing, and focus instead on cloud hosting and patient data interoperability. For employers, health plans, and life science firms bracing for cost challenges or new mandates in 2023not to mention the impending end of the COVID-19 public health emergencywe hope health systems 2022 moves set the tone for all enterprises balancing the immediate with long-term innovation decisions. Digital health cant cut its way to impact, and the smart decisions of today will fertilize the next investment upswing. The Digital Health 150 is CB Insights' annual ranking of the 150 most promising digital health startups in the world. In 2021, there were eight completed IPOs and 15 SPAC mergers in the digital health space, which was by far the . Furthermore, we recommend that you consult an independent tax adviser in order to obtain information on the tax regulations relating to a specific investment in your legal jurisdiction and with regard to your personal circumstances. Prospectus, Key Investor Information Document (KID), fund contract as well as the annual and semi - annual reports of the Bellevue Fund under Swiss law are available free of charge from: Switzerland : PMG Fonds Management AG, Dammstrasse 23, 6300 Zug or Bellevue Asset Management AG, Seestrasse 16, CH - 8700 Kusnacht. The company . 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. As a three-year digital health funding cycle comes to a close, the investment market will recalibrate to a more sustainable run rate. 4 Abs. Between Q3 2019 and Q2 2021, investors continuously increased investments into digital health quarter-over-quarter for seven straight quarters, with one dip in Q2 2020. We expect to see activity in areas of high expected future growth in 2023. About the Author: Stephen Hays After decades of addiction and struggling with bipolar disorder, Stephen was fortunate to receive help and has focused his attention on funding solutions to the problems he lived with. Registered address: Spaces, Mappin House, 4 Winsley Street, London W1W 8HF. The exact valuation multiples will range overtime but studying multiples over the last five years we see an average of 7.2x, median of 6.3x. We hope 2022 is a turning point for the digital health industry when it comes to clinical outcomes and would encourage all companies to make these necessary investments even from their earliest days. Adoption of B2B models doesnt necessarily change a D2C companys customer-centricity. Digital technology has the potential to capture huge value in healthcare systems around the world, with the benefit of improving care while also driving down its cost. The list below shows some common equity multiples used in valuation analyses. A mandatory rule is that the represented . In particular, you should not enter into any investment before you have read the corresponding fund agreement or legal prospectus, the annual and semi-annual reports, the articles of association (as far as they are applicable), as well as all other documents, as required in accordance with local legislation or the regulations applied in the legal jurisdictions or countries in which the corresponding investment fund has been licensed or approved for public offer or sale to the public. Founders can reach out via this form, or you can email us via info (at) whatif(d0t)vc. The funds are currently registered for public distribution offer in the following countries: Luxembourg, Switzerland, Germany, Austria, Spain and Portugal. Something went wrong while submitting the form. Deeper clinical services translate into lower margins and more extensive and expensive clinical apparatus. . For example, a Seed startup could be valued using 50-60% IRR, whilst a Series A startup would instead use 40-50%. For others, 2023s continued pressures might be a final nail in the coffin, with shuttered doors or acquisitions on the horizon. This tells me that analysts believe the operating environment for companies in our space will continue to be at least good, if not improving. 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. This is what we finance types call a re-rating. For example, if a startup is showing an annual revenue of $1,000,000, the estimated valuation of this company using revenue multiple valuations by industry will be: Valuation = $1,000,000 * 3.67 = $3,670,000. The multiple has been sliced over the last year. Rarely do we find a pure-play public comp that we can compare to a startup. The biggest M&A deal of the year was Data to Decision AG acquisition of MEDIQON GmbHa software company providing data analysis solutions to generate insights capable of driving healthcare sector decisionsfor $30bn. Growth and crossover funds that are new to digital health have been particularly active in digital health (e.g., Tiger Global made 25 digital health investments in 2021) On the other hand, 55% of digital health investors in 2021 were repeat investorssimilar to the average 58% repeat investors across the prior three years 2018-2020 This button displays the currently selected search type. Noom and Oura targeted employers interested in modernizing health and wellness benefits, Calibrate sought out payer reimbursement, and Whoop explored applications in remote monitoring.6, D2C businesses that have established strong consumer DNA and proven unit economics could be well-positioned to add more healthcare services under their brand umbrellas. As Bessemer has been investing in healthcare for four decades, last year was unlike anything we have seen before.