Venrock's health care prognosis
The top consolidator of VC-backed health tech startups this year will be United Healthcare/Optum, according to the results of Venrock’s 2022 health care prognosis survey. Go deeper (2 min. read)Why it matters: With IPOs and SPACs off the table (so far), 2022 is pegged as the year of M&A in health tech as portfolio companies revisit their growth playbooks.
- With that, you’re left with two choices if you're running out of cash, Venrock partner Bob Kocher tells Sarah: “Either a down round, which is hard to do and is punishing, or sell. Selling is going to be a lot better.”
By the numbers: 25% of respondents point to Optum (whose recent provider buys include LHC Group, Kelsey-Seybold, Refresh Mental Health and Atrius Health) as the most active acquirer in the next two years.
- The big implication? More startups have to focus on unit economics and how to become profitable, Kocher says, versus growth at any cost. “You’re not going to get bought by United Healthcare if you’re not EBITDA positive.”
Meanwhile, 21% of respondents say that both little companies merging and private equity will be big consolidation contributors.
- Kocher expects PE groups and VCs are poised to have more interactions this year as the former starts to think about aggregating health tech startups.
- “What PE is really good at is combining things together. On the venture side, we rarely do mergers,” Kocher says. “And, they actually might pay more than Optum would.”
- 19% expect Big Tech to drive consolidation, and just 9% suspect CVS and Walgreens will be major buyers.
Separately, the top three “fallen angels” that respondents expect to rebound by a 5x measure in stock price are Teladoc, One Medical and Oak Street Health. (All three have seen shares retreat 70% or more from their highs as of March 15.)
- “The demand forever is higher for virtual care and Teladoc is the market leader. I think they’ll be a consolidator of point solutions,” Kocher says.
- Respondents are least optimistic about rebounds across InnovAge, Babylon Health and Cano Health.
Yes, but: While the public markets have cooled off, if you’re looking to start your business right now, it’s still easy, says Kocher.
- The money and focus have shifted to the early stage markets (Series A and Series B rounds) and valuations have not come down, he says.
- “I’ve never had an easier time recruiting for our portfolio companies,” Kocher adds, pointing to the great resignation coming out of Big Tech and health systems. "They all want to work for companies that are mission-driven."
Between the lines: There are some believers that the IPO window will start to reopen in the summer, but only time will tell. Excluding all Venrock portfolio companies, here are respondents' top five 2022 IPO picks, based on their long-term promise...
- Omada Health
- Hinge Health
One fun thing: Will Sunny Balwani of Theranos be found guilty? Per Venrock’s survey…
- 71%: Yes, he will be found guilty with a little jail time.
- 16%: Yes, he will be found guilty with lots of jail time.
- 11%: Yes, he will be found guilty, but serve no jail time.
- 2%: No, he will not be found guilty.
Yes, plus: 70% expect Elizabeth Holmes will see jail time, but less than 18 months, whereas 28% predict she'll be sentenced to five-plus years.