This Week in Digital Health’s Post

The digital health investment landscape is notoriously volatile, and behavioral health startups are feeling the effects. After the surge of VC interest in 2021, funding in the sector has slowed, creating both challenges and opportunities. As the behavioral health market continues to transform, startups must demonstrate clear paths to profitability and long-term impact to secure ongoing support. Read more on Behavioral Health Business. https://lnkd.in/g9d5u9Ew

The mental health industry is witnessing a surge of innovative startups transforming the landscape of mental wellness and care. The rapid growth and innovation are creating exciting opportunities for investment and collaboration. Here are some promising companies that could be the next big IPO, acquisition targets, or potential buyers in the space. #MentalHealthInnovation #HealthTech #Business

"In the past few years, the market has changed, and there’s no denying it. Good companies are still raising capital, and we’ve seen more examples of that in the past few months. But investors are now far more disciplined on valuations (outside of AI), and on how much they invest. They want to see companies hitting their milestones and finding product/market fit. Because of this, we expect to see companies that struggle to prove a business model finding alternative exit paths or quietly shutting down in 2024 and 2025."

Just over 6 years ago, buried in Rock Health's 2017 year-end funding recap, we noted that public markets were shrinking, concluding with: "For now, at least, M&A is the new digital health IPO." https://lnkd.in/gHkdg9BU Six plus years later, the public market situation hasn't really changed. For a variety of regulatory and economic reasons, the stock market continues to shrink, and as a side effect of investor-friendly innovation (i.e., ETFs), it has become less efficient at allocating capital to new things. Meanwhile, however... PE appears to have stepped in to start filling the gap. 1. Getting Smaller Net equity issuance has been NEGATIVE in all but 10 of the last 109 quarters, with over $7T in public market net equity *retired* since the Fed started tracking data in 1996. (https://lnkd.in/gZUdr-Ya) There's been fewer IPOs and a lot more stock buy-backs + acquisitions. 2. Less Efficient (at allocating capital) Passively managed funds are great for public market investors but bad for capital market efficiency (because, well, they're "passive" allocators by definition). They'll soon represent about 25% of global AUM.(https://lnkd.in/g7uzPbSW) 3. PE Steps in Contrary to public market trends, however, "buy and hold" PE continues to grow. McKinsey recently reported that as of June 2023 PE AUM hit ~$13 trillion—roughly *double* the amount just 5 years earlier, in 2018, with a record $3.7 trillion in dry powder. (https://lnkd.in/g9z3XeqA) TL;DR: The sky is not falling, but the path to liquidity has evolved considerably in recent years. Some things remain the same, however: Having a plan and executing it well is, as a founder or as a venture investor, the best most sure path to creating valuable, profitable business. And working with folks who get what you do, are mission-aligned, and want to see you succeed makes the journey that much better.

🟢 Spring Health Secures $100M Series E: Mental Health Startups Continue to Thrive ➡️ Spring Health, a mental health services provider, has raised a $100 million Series E round, elevating its valuation to $3.3 billion — a 65% increase from its 2021 valuation. Led by Generation Investment Management, this round brings Spring Health's total funding to $467 million. The New York-based startup partners with employers to offer mental health services and utilizes AI to expedite care delivery. ➡️ This funding follows recent significant raises in the mental health sector, including Talkiatry's $130 million round and Headway's $100 million Series D. Despite being off its 2021 peak, mental health funding has maintained stability this year, demonstrating continued investor confidence in the sector. The mental health tech sector continues to present compelling investment opportunities. The substantial valuation increases of companies like Spring Health and Headway, coupled with consistent funding rounds, signal strong market demand and potential for scalable, AI-enhanced mental health solutions in the workplace and beyond. #VentureNews

🚀 New Milestone Alert! 🚀 MMW (My Mental Wellbeing) has been selected as one of the 20 innovative mental health startups to join the very first Nordic incubator, Next in Mind! Next in Mind program is co-founded by Reach for Change, The Inner Foundation, and Tim Bergling Foundation Over the next 1.5 years, MMW will receive: 💰 Financial funding 📈 Business development support from top-notch professionals like Bain & Company 🌐 Access to a phenomenal network of social impact investors and stakeholders to help us scale and enhance our impact 🌟 Our vision for the next 1.5 years is to scale our impact-based solution that combines upskilling individuals and leaders on mental wellbeing skills through our curated workshops program and AI digital wellbeing platform, with a focus on establishing a psychologically safe workplace culture that prioritizes the wellbeing of all employees. 💪 This achievement is a testament to the power of hard work and dedication. After 4 years of relentless effort, this opportunity marks a significant milestone for MMW. I can't wait to see what we accomplish together. To everyone who believed in MMW from day one or along the journey (board members, partners, team members, community of 3500 change agents) and many others! THANK YOU, as we say #WeAreJustGettingStarted Read More here: https://lnkd.in/dkpu9nH2 #socialimpact #mentalhealthinvestments #VC #investors #startupnordics #mentalhealthStartups #wellbeinginvestments #impactinvestors

Absolutely essential. When you think you have mastered your own mind and are resilient/bulletproof, that's when you need to re-invest in it - you've become complacent and are vulnerable. You won't win every battle in your startup though; you need to be good at getting back up off the ground. Sustainable resilience is simply your elasticity/refusal to stay down in the face of whatever it is at the time 🤷🏼 Join this ⬇️

Q: Is 2024 the year of M&A frenzy over digital health startups? A: I don’t think so. Let me explain. Cash is king right now due to treasuries yielding 5%+. And many companies are looking to reduce or stabilize headcount, so acqui-hiring seem less likely. Now there are certain sub-sectors that are hot for M&A (e.g., home health, hospice), but those targets are generally legacy, scaled businesses as opposed to newer venture-backed varieties. And the pain (especially with culture) of acquiring a company with previously high ambitions for pennies on the dollar isn’t easy to manage when retaining top talent. I see a lot of companies still digesting their M&A decisions between 2020-2023. For example, I can’t see UnitedHealth Group (Amedysis), Amazon (One Medical), CVS (Signify, Oak), or Walgreens (VillageMD) making any more bold moves this year. The traditional leveraged buyout (LBO) model for private equity doesn’t work if there’s not enough cash flow to cover the debt interest. And although growth-stage healthcare companies may have some cash on the balance sheet, they will likely reserve to cover burn rates for another few years. All-in, I don’t see a lot of M&A, or at least the type that investors and founders would appreciate. No one wants to get hit with a large noncash goodwill impairment from a deal that doesn’t pan out (e.g., Teladoc and Livongo). Do you agree or disagree?

The Q3 2024 digital health market up date: Waving tapestries by Rock Health is out. $2.4B in 110 deals in the U.S, year-to-date funding $8.2B. More focused. More market-driven or market-responsive. More M&A. Innovative products. Better quality. Improved consumer experiences. Does the new term "Weaving tapestries" suggest digital health funding is more of an art form than a financing science or an IPO exit? Check it out for yourself. "Companies are launching new products and partnerships to improve consumer experiences. Retail and tech brands continue to roll out health programs and features on blockbuster products. Some digital health players are carefully planning IPOs, while those that aren’t faring well on the public markets are recalibrating through take-privates. Meanwhile, other companies are using strategic acquisitions to expand their product offerings—a trend we’re watching closely and will dive into later in this piece." #digitalhealth #investment #funding #mergers #acquisitions #deals https://lnkd.in/g32Vw6nq

In life, you know that trying to be everything to everybody is the quickest way to fail. At Symphonic Capital, we believe the same is true in business. Let me tell you what I mean. Investing in specific problems for specific communities might seem counterintuitive, but it actually has enormous opportunity. When you get focused, you get access to core insights that enable you to grow more efficiently. Oakland based, Kaiser Permanente is a great example. When they launched in 1945, instead of trying to be a health system that was the best option for everyone, they got specific. Laser focused on providing preventative, affordable care to union workers in California, they started with a 50-cent per week plan! As they grew with this north star in mind, they realized that more people were searching for these affordable and preventable services and to accommodate that interest, they offered a public plan that was open to all. This put Kaiser in the crosshairs of the medical establishment and they were politically attacked as “socialized medicine.” They remained true to their vision and now, almost 75 years later, have grown into $100B+ in operating revenue. Kaiser is a great story that illustrates an approach that I’ve seen work time and time again. If this approach resonates with you, and you are building in the fintech or digital health space, I’d love to hear from you! Please reach out to us at symphoniccapital.com.