More cautionary funding will force consolidation
In 2022, we saw “growth at all costs” give way to strong unit economics and judicious bottom lines. This trend of cautionary investments will only strengthen in 2023 with FOMO investing vanishing. Resultantly, founders will realize the importance of PMeF (Product Market Economic Fit) as a PMF is easier to achieve at all costs but exponentially more challenging to achieve rationally. Startups unable to find a balance between top-line and EBITDA will find it tremendously difficult to raise capital and will look towards acquisition or might shut shop. And yes, this trend is not unique to healthcare.
Genesis of a new breed of talent that will further healthtech innovation
2022 was a year of massive layoffs: more than 18,000 employees were let go from startups. Of these, at least 2,000 were from healthtech companies. Some of these individuals with their tech, start-up, and healthcare DNA can continue to innovate in the space. These folks can bring fresh perspectives and innovation to unexplored therapies such as pain management, oncology, respiratory care, etc. We sincerely look forward to founders building companies beyond healthcare services aggregation, teleconsultation, marketplaces, employer wellness solutions, wellness products — models that were the most funded in the last two years.
Omnichannel is the only way to go
After seeing the journeys of several portfolio companies and incubations at W Health, we believe that having a strong omnichannel presence will not only be pertinent for the growth but also the survival of digital health companies.
Start-ups offering healthcare packages and services have already begun realizing the importance of physical touch points and are thus partnering with legacy healthcare providers and opening offline centers. In 2023, more digital-first platforms will move offline.
Healthcare is unequivocally trust-driven with offline channels accounting for a majority of healthcare touchpoints and spending. New-age models, especially those targeting specialized care with high ticket prices, will need to build on the existing offline channels to achieve credibility and scale. On the books, an offline shift will help start-ups reduce performance marketing spend and achieve positive operating profit, a feat many investors are looking for.
Vertically integrated care models will proliferate in multiple therapy areas
The second wave of healthtech innovation in India will largely be introducing newer vertically integrated care models or single-specialty services companies, either online or omnichannel, that will solve underserved or under organized clinical sectors. The rise of such care platforms can be directly attributed to demand for patient-centric solutions, continuity of care, and providers who understand patients’ longitudinal health history. On the provider side, these platforms will improve clinical outcomes and capture the entire patient spend.
We believe in 2023 we will see innovation across unexplored therapy areas like pain management, weight loss, oncology, respiratory health, etc. Each of these segments individually has a large TAM (Total Addressable Market) and comprises patients with high LTVs.
Patient experience will define the moat
To navigate the restrained funding climate and high customer acquisition costs, start-ups are more than ever aiming for unparalleled customer delight to avoid losing customers and increase retention. This trend will continue in 2023 with service and delivery time being a key lever. Already, diagnostic start-ups are providing same-day sample collection while health and wellness brands are aiming for same or next-day delivery. Flawless and empathetic patient experience will not only help build retention, but also bring credibility and trust – both being key to any healthcare business.
Tech built in India for the world
Investment in technology by healthcare has historically lagged industries like retail or financial services but that continues to change rapidly in the US and the world over. This spend will continue to increase in the coming decade, opening exciting opportunities for healthcare technology services and product start-ups building for the US and rest of the world.
There is a sizable C-level talent pool in India that has either worked with leading healthcare companies overseas or with India-based development centers of global marquee providers and pharma companies. Moreover, India houses over 100,000 engineers who have built products and solutions for the US healthcare industry. This pool has a detailed understanding of the complex US healthcare system and its myriad pain points and is now building companies for the US from India.
Tech giants will continue to flock to healthcare
In the last two years, MAMAA players (Meta, Alphabet, Microsoft, Amazon, and Apple) have announced several healthcare interventions. Meta-owned WhatsApp has an incubator program for digital health startups while Microsoft recently partnered with AIIMS Jodhpur to aid digital health innovation. Alphabet’s Google Health is working on detecting heartbeats and murmurs and measuring heart and respiratory rates through smartphones. It has also partnered with Apollo Hospitals to study how deep learning models can be integrated into diagnosis workflows, and with Aravind Eye Care System and Sankara Nethralaya to leverage AI-ML to improve diabetic retinopathy diagnosis. This has bolstered the confidence of every stakeholder in the ecosystem and also holds a plethora of benefits for startups.
Finally, the good news is if you have a solid business model, are a seed stage company, or have runway till H2 2023, there will be no funding winter for you.
There is $16 billion of dry powder available for deployment with ~2,500 investors in India. Despite higher caution, ventures with strong unit economics and innovative business models will not find it difficult to raise capital. Seed stage funding was immune to the bear markets of 2022 and will remain so in 2023. The amount of seed funding increased by 86% and the number of deals increased by 7% in 2022 from 2021.
Most late-stage startups had built an 18-24 month cash runway to combat the funding winter but might need external financing by H2 2023. We anticipate signs of recovery for financing at Series B and beyond in the second half of the year.
(The writers Dr. Pankaj Jethwani is executive vice president, W Health Ventures and Namit Chugh is the investment lead at W Health Ventures and Vedika Tibrewala, Investment Team at W Health Ventures, a venture capital firm that invests in tech-enabled early stage healthcare companies)
