More deals appear to be on the horizon as investors find themselves inundated with pitches from new startups hoping to grab cash. And, after withholding funds during the downturn, VCs are starting to write checks again.
“This year has been, out of the gate, fast,” said Anargha Vardhana, partner at Maveron. “That first week, I was slammed. A lot of companies are fundraising, and I have a lot of new pitch meetings.”
Gone are the days of sky-high valuations attached to a good idea without proof of concept. Investors’ standards are certainly higher than in 2021 — but after last year’s funding drought, startups have readjusted their expectations.
Investors aren’t anticipating healthcare funding to surge to anything resembling 2021 levels this year, and fewer deals could mean shutdowns for many companies running low on cash. But good companies, with solid revenue channels and market traction, will continue to get funded — including growth stage companies, which saw funding slow to a halt last year, several VCs told Business Insider.
“There’s certainly more activity. A lot of companies have to raise this year because they’re close to running out of money,” principal at OMERS and health-tech investor Christina Farr said. “And many investors haven’t done deals in a while, so they’re keen to do deals again.”
Monthly payments to low income families have helped them prosper, according to initial study reports.
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Resetting expectations for growth-stage raises
While seed-stage startups continued to grab venture funding throughout the downturn, many mid- to late-stage companies struggled to land extra cash. Investors are expecting that to change this year.
“Many of the early-stage and growth-stage companies that raised outside rounds in 2020 and 2021 are only now needing more capital,” Insight Partners managing director Scott Barclay said. “Plus, many needed time to grow into previously high valuations.”
Multiple healthcare startups have announced raises this year at Series B and beyond. AI-powered players are sitting at the center of this surge — medical-scribe startups Ambience Healthcare and Nabla raised Series B rounds in the first quarter of 2024, while AI-powered prior authorization startup Cohere Health and clinical documentation company Abridge raised Series C rounds.
Abridge CEO Dr. Shiv Rao.
Abridge
While AI deals are “getting done left and right,” Vardhana said, she expects to see more raises announced for non-AI healthcare startups, too, toward the end of March and at the beginning of the second quarter.
Investors said there’s now a higher bar for which startups get venture funding compared to 2021, however. Namely, VCs want to see good unit economics, market traction, and an impressive return on investment for the startup’s clients.
Plus, most startups will have to abandon their dreams of raising mega-rounds at unicorn valuations. Last year, investors said, many startups weren’t ready to make those concessions — but now, these standards are the new normal, Farr said.
“Entrepreneurs are now aware at this point that they might not get the valuations or money that they want,” she said.
Investors are eyeing specialty-care deals
Generalized telehealth platforms aren’t piquing investor interest like they used to.
Instead, many investors are looking to put their money behind specialty-care startups that are targeting a clear problem in a specific niche of healthcare.
Several VCs said they’re looking to mental health, which is flooding with specialized players targeting everything from autism care to pediatric mental health.
“The market is so big, and the supply-demand dislocation is so big, that the market can probably support multiple billion-dollar winners,” said Sara Choi, a partner at Wing Venture Capital.
Ritankar Das, cofounder and CEO of Forta. The autism-care startup raised a $55 million Series A round in January.
Forta
The market has warmed up to value-based care, too, where companies get paid based on patient outcomes rather than for the volume of services rendered. Areas like women’s health, cardiology, and neurology leveraging these models could see more investment this year — including by large private-equity firms, said Supriya Jain, managing director and partner at Boston Consulting Group.
Exits and shutdowns ahead
While a number of biotech startups have jumped into the public markets already this year, the IPO window for healthcare startups has remained firmly shut. Still, many investors are optimistic that a few healthcare startups will test the waters later this year.
Investors also expect to see an uptick in M&A. Jain predicted an increase in specialty-care “rollups,” where private-equity firms buy up a number of small startups to create a large healthcare company with a national scale.
“You want that regional density, so you’ll either have private-equity firms buying platforms that already have regional density, or buying multiple slightly smaller platforms, and then adding ancillary care — for example, in orthopedics, adding physical therapy or chiropractic care,” she said. “That’s where you really unlock value creation.”
Some companies, including those that notched unrealistic valuations before the downturn, may need to turn to their existing investors for extension rounds, or take unfavorable deal terms from new investors to raise more capital, Insight Partners’ Barclay said.
Others may be forced to shut down altogether. VCs are split on how to approach companies in their portfolios that are teetering on this precipice, Farr said.
“There’s a lot of contention around, what should you do with a portfolio that’s struggling?” she said. “There are some VCs that are thinking, maybe you just let those companies die.”
