Telehealth Dealmaking Is Up At Every Stage—And So Are Valuations

A new weekly column by Crunchbase News reporter Joanna Glasner where she explains the story behind the money that makes up the startup and investor world.

Usually, venture investment goes in waves. When an industry is in its nascent stages, we see lots of angel investment. Then early-stage and subsequent later-stage rounds proliferate. Eventually, successful startups mature and get acquired or go public.

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Telehealth1 is not following that pattern. The combination of a pandemic and a pre-existing trend toward more remote and digital tech-enabled health care has led to supercharged funding for the space at every stage.

In recent months, seed investors have backed a bunch of multimillion-dollar rounds for startups with offerings like postcard urine tests, metabolic telemedicine and pediatricians on demand.

At early-stage (Series A and B), we’re seeing big rounds for startups in mental health telemedicine, AI-enabled health care, and digital digestive care.

And at later-stage, VCs have invested well over a billion dollars in telehealth this year, including big rounds for digital health clinics, virtual family care and at-home tests for genital health.

(Those are just a few of the offerings. For more detail, we’ve aggregated more sample 2020 telehealth investments in a seed-stage list, an early-stage list and a late-stage list. There are also lots of really big telehealth exits, which we’ll discuss later.)

You don’t need deep health care expertise to pinpoint what might be driving investor excitement around telehealth startups. COVID-19 has motivated more people to avoid face-to-face interactions for tasks that could be done remotely. Doctor’s office visits are out, and Zoom calls are in.

At the same time, a digitally native generation of consumers is looking for mobile-friendly, at-home health care options. It’s a relatively easy sell, as it’s not as if anyone likes sitting around in waiting rooms or showing up in person to provide bodily fluids for testing.

Younger consumers are particularly receptive to digitally delivered care options. A securities filing this past week by online health platform Hims & Hers, cites survey data finding that “three-fourths of U.S. millennials would rather search for medical advice online versus seeing a doctor in-person.”

The market is enormous too, of course. The U.S. telehealth industry is forecast to grow 30 percent annually over the next five years, per a report from research firm Arizton. This year will see the highest growth, amid the pandemic, with telehealth revenues projected to hit $10 billion. Hims & Hers estimates that nationwide there are more than 50 times more telehealth visits now than there were pre-COVID, across all providers.

What looks like a large telehealth market today could turn into a staggeringly ginormous one in the future. In the United States alone, health care spending is projected to exceed $4 trillion in 2020 and grow to $6.2 trillion by 2028, according to the Centers for Medicare & Medicaid Services. With an aging population requiring more complex care and a younger generation that is accustomed to digital technology, Hims & Hers contends, telehealth offers an efficient way to leverage finite resources.

The growth potential for telehealth isn’t lost on public market investors. That’s probably why in addition to pouring money into venture-stage companies, VCs are also exiting prior telehealth investments at a healthy clip. They’re getting generous valuations along the way.

GoodRx, a profitable online platform for comparing prescription drug prices, went public last month in a smash debut and has held up, with a recent valuation around $19 billion. Other debuts in recent quarters, including OneMedical, Amwell and Livongo, have also racked up high valuations, as illustrated in the chart below.

Enthusiasm has been more muted for Hims & Hers, which this month announced plans to go public by merging with a blank-check acquisition company in a deal that will value the combined business at about $1.6 billion. The proposal “has not been well received at all,” by retail investors, said Julian Klymochko, CEO of Accelerate Financial Technologies, operator of an index fund for blank-check companies and their merger deals.

Hims & Hers is banking that perhaps sentiments will change with a third-quarter financial statement released Thursday. It shows revenue of $41 million in Q3 of 2020, up 90 percent year over year.

San Francisco-based Hims & Hers stands out in the telehealth space for its focus on millennials and younger consumers. The company offers pharmaceuticals, wellness products and online consultations with health professionals around sexual health, anti-baldness treatments, mental health and other areas.

While the eventual winding down of the COVID-19 pandemic could motivate more patients to resume in-person consultations, Hims & Hers, along with other telehealth players, are confident the shift to more virtual care will be a resilient trend.

After all, most of us are looking forward to attending all kinds of fun things–sports events, concerts and festivals–that have been put on hiatus during the pandemic. Few of us, however, are looking forward to the prospect of returning to crowded waiting rooms.

Illustration: Dom Guzman