As the stock market experiences a collective shudder in the wake of the coronavirus pandemic, investors are actively seeking out new opportunities for healthy long-term gains and higher upside potential. Start-up investing is not a new phenomenon in the financial world, but one sector, in particular, has seen a veritable boom in investors since the beginning of the COVID-19 pandemic. While many industries plummeted in the first quarter of the year, digital health companies closed the first quarter of 2020 with unprecedented levels of funding.
Private equity and venture capital financing of digital health start-ups reached an all-time high of just over $3 billion in Q1 2020. One leading sector of the digital health space, telemedicine companies, generated three times the amount of financing they received in Q1 2019, raising $788 million in venture capital backing, compared to $220 million in the first quarter of 2019. Start-ups in the mental health arena also saw landmark levels of funding in Q1 2020, reaching an astounding total of $576 million.
Rock Health is a venture capital fund dedicated to digital health start-ups. The firm recently released a report examining the digital health sector's record Q1 and the anticipated market impact of the COVID-19 pandemic later in 2020:
Though a broad pullback in venture investing was likely under way at the start of 2020, US digital health companies nonetheless raised a whopping $3.1B across 107 deals—more than 1.5X the total funding in Q1 of any previous year...This caps off the largest ever twelve-month funding period (TTM) for digital health, with $9.3B invested across Q2 2019-Q1 2020...The size and speed of the public markets' sell-off has been breathtaking. Private markets will likely not experience as dramatic of a downturn because private equity, of which venture capital is a subset, comes from capital committed by limited partners.
On that note, here are three top digital health start-ups to watch in the months to come.
Founded in 2007, Zocdoc is a medical appointment booking service that helps millions of patients find healthcare providers each month through a vast online marketplace. Patients can find doctors in their network in a matter of clicks, read provider reviews, schedule appointments, and fill out paperwork in advance through the Zocdoc portal. With the advent of COVID-19, Zocdoc stepped up to the plate with new virtual appointments as an increasing number of patients seek telehealth solutions amid the pandemic. These patients will probably continue to rely on telehealth more than before when the current crisis has subsided. Telehealth has experienced broad political tailwinds that should keep spurring the niche forward by solidifying its place in society and widening adoption.
Zocdoc currently has nearly $226 million of total funding and its backers include Goldman Sachs, Bezos Expeditions, and Marc Benioff (founder of salesforce.com and angel investor.) While Zocdoc has not yet announced any formal plans to go public, with the company being in late-stage Series D funding, rumors have been swirling for some time that the company may be one in a long line of health start-ups to go the initial public offering (IPO) route before long.
Talkspace is a New York-based virtual behavioral health start-up that connects individuals with licensed mental health professionals to create a more comfortable and convenient therapy space. Users start by taking an assessment and picking a payment plan. Talkspace then matches them with the best therapist for their specific needs. Individuals can use webchat to contact their therapist, or set up a video conference. Talkspace also provides couples counseling and prescription fulfillment, among a range of other services.
Thus far, Talkspace has received $109 million worth of funding from notable venture capitalists. The company's backers include Norwest Venture Partners, a well-known venture and growth equity firm that manages nearly $10 billion in capital based in Palo Alto, Calif; Compound, a seed-fund based out of New York City; and Qumra Capital, a leading Israeli late-stage venture capital group.
There's been chatter of Talkspace considering an IPO for some time. The company's 2018 hire of former UnitedHealth Senior Medical Director Neil Lebowitz as its first chief medical officer further fueled speculation of Talkspace's wider effort to expand its enterprise sector and potentially pursue an IPO. As things stand now, there is no set target date for the company to go public. Bear in mind, across most sectors, the coronavirus pandemic has largely been projected to delay IPOs in 2020.
Headspace is a start-up headquartered in Santa Monica, Calif. that operates a leading mindfulness and meditation app intended to help people enjoy better sleep and reduce anxiety. The mental health start-up has roughly $170 million of funding behind it. Its latest Series C round of funding closed in February, raising $93 million, comprised of $53 million in equity backing, with the remaining $40 million in debt capital.
Driving the Series C round of funding were new investors Waverly Capital and Times Bridge (of the Times Group of India), along with longtime investors like Spectrum Equity and Advancit Capital. Headspace is a late-stage venture, and now that the start-up has successfully gone through three rounds of funding, the company may be gearing up for an IPO. Many companies conclude outside funding after Series C. As it stands now, the company could be well-positioned to use its most recent round of funding to increase its valuation in preparation for its public market debut.
Digital health start-ups are a bright spot in the storm
As the pandemic has had a detrimental effect on the physical and mental health of global populations, start-ups in the digital space have continued to narrow the gap between patients and medical professionals by offering affordable, accessible behavioral and healthcare solutions. These services were relevant before the pandemic, but are needed now more than ever. This creates an opportunity for early investors like never before.
Rock Health surveyed an array of investors from various firms for its report. One investor surveyed was the Managing Partner of French venture capital firm Seventure, Isabelle de Cremoux, who noted "Our physical processes have forcibly changed but our activity has not -- we are continuing to pursue investments in digital health, microbiome, biotech, and nutrition. In digital health, we see an urgency for investment as the current upheaval calls for an accelerated adoption, evolution, and creation of digital health solutions."
Health start-ups look singularly poised to weather the coronavirus storm. And while there is certainly no quick fix for the public or private financial markets grappling with COVID-19, digital health continues to present an increasingly attractive investment opportunity in these ever-changing times. You could see many of them make their way to public markets over the next few years, so keep an eye on these three stars in the digital health space.