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 Organizationreports 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 soaringunemployment 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? MobiHealthNews 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.
Slowdown depends on the type of investor
In the last few years we have seen different kinds of investors emerge onto the digital health stage, including payer and provider funds as well as the traditional venture capital funds. The origins of a fund may give a hint as to their strategy in the upcoming year.
“I think it is a mixed bag depending on the type of investor: Strategic investors (providers venture capital funds) are going to slow down because COVID-19 will require all hands on deck, and so many of the staff that generally are involved in the diligence process will be reallocated to deal with COVID-19-related issues, so they won’t be able to do diligence at the same pace they are used to,” Emma Cartmell, an angel investor and founder of Cartmell LLC, told MobiHealthnews. “Conversely, many traditional VCs are sitting on a lot of dry powder, and I think they’ll continue business as usual in 2020. But I do think we'll see the slowdown in preceding years. Also, with the reduction in funders, I think that VCs will negotiate harder and look to get better deals.”
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.”
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