In the first quarter of this year, investors injected a cool $3.1 billion into venture funding for digital health. Then came COVID-19. What will those investors do now?
Watch, wait and possibly get back to business as usual.
So suggest the authors of an analysis posted this week by Rock Health, which bills itself as the first venture fund dedicated to digital health.
The firm says it queried 12 leading healthcare investors the third week of March.
“Although the responses paint a somber picture of the emerging funding environment,” the authors of the analysis write, “there is a tangible sense of resolve to not waste this crisis—to leverage digital health solutions to immediately combat the pandemic and build on that momentum to radically reshape the way healthcare is delivered in the U.S. and globally.”
Drawing from the survey respondents and its own responses to the same questions, Rock Health makes ventures two near-term predictions and one overarching observation.
1. Access to capital will tighten. “There is every reason to believe that the dual supply and demand shocks will be a significant event for all companies, and startups are no less vulnerable,” the authors write. Adding that the COVID-19 crisis is certain to disrupt supply chains, cut growth forecasts and suppress hiring, they report that eight of their 12 surveyed investors believe digital-health startups will have a “much harder time” raising capital in 2020 than in 2019.
2. Access to private capital won’t contract as rapidly as public capital. Private markets may weather the COVID storm better than their public peers. That’s because private equity comes from capital committed by limited partners, the authors note. “Unless those commitments are unwound (a difficult process), private equity and venture firms are obligated to continue investing the funds raised prior to the current crisis.” Meanwhile the size and speed of the public markets’ selloff “has been breathtaking,” they write.
3. Digital health is uniquely suited to expand the capacity of our strained healthcare system.
“There is no silver lining to the SARS-CoV-2 pandemic and the economic downturn it portends,” Rock Health writes. “However, the digital health sector is uniquely positioned to tackle many current and upcoming challenges.” The authors suggest new operational needs are rising in healthcare as hospitals and other provider systems around the world strain to meet demand while dealing with calls for social distancing.
Tom Cassels, Rock Health’s president, adds a confident prediction to the analysis.
Overcoming COVID-19, he says, “will reinforce that healthcare cannot go back to a time when virtual or automated care was not normal operating procedure.”
To read the full analysis as posted for free, click here.