Happy(?) New Year...!
Happy (almost) Year of the Wood Snake!
A pending new year always brings with it a compendium of “year end reviews” and a slew of prognostications about what (may) lie ahead. It is certainly an occasion which provides an opportunity for reflection – and hopefully, preparation.
It seems that the new year also brings with it the opportunity to garner more clicks and views via the “bait” of unmitigated optimism...something along the lines of the following headlines, many of which were of course pre-JPM.
“A flood of health tech deals announced ahead of JPM”
“It’s already shaping up to be a huge year for digital health M&A…”
“We believe this transaction could mark the beginning of an M&A wave for digital health names, where we continue to see compelling valuation multiples for public equities across the space,” analysts at William Blair said…”
“A wave of mergers and acquisitions may be on the horizon for the digital health sector if JPM is any indication.”
“There seems to be a general sense that we will see a lot of M&A activity in digital health this year…”
“Healthcare proved to be a resilient market for M&A in 2024, despite deal volume declining 9% from 2023.” (???) [Well, for healthcare services, but definitely not for digital health / HealthTech, as there were very few deals in 3Q24 and very, very few in 4Q24, to the point where many online outlets didn’t even publish the numbers for the last quarter of last year.]
Don’t get me wrong, I consider myself an optimist. Yet at this juncture of my career and version of self, my optimism is firmly tethered to reality, and most recently, the reality of having been firmly embedded in the trenches of dealmaking for the last several years as an investment banker. I’ve been in those trenches (looking for deals upon which I could be successful, raising capital, trying to sell my clients’ businesses, and sometimes being successful across those efforts…), and it simply ain’t pretty out there. In fact, this is very likely the most chaotic New Year in recent memory, globally speaking. But based upon my experience over the past 3 years of a downtrodden #digitalhealth / #HealthTech sector (across overall funding, comparing healthcare raise percent growth from prior year, vs other industries, M&A activity, etc.), there are definitive strategies to follow and actions that you can take to increase your odds (I.e., to derisk) of accomplishing your strategic objectives.
All of my many healthcare connections have been living this, but let’s recap some of the chaos of the last few years (I know, it hurts, but it has to be done…):
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Add to the above, a very fast moving regulatory / compliance / policy landscape as the underpinnings, and that’s a fair amount of chaos. Each of these events has significantly impacted the practice and delivery of healthcare in the U.S., each is a ‘game changer’, in its own way, i.e., a tectonic shift to much of the healthcare and life sciences industries.
We can’t know what’s going to happen in advance. But we can plan and prepare with well thought (and executed) risk management strategies. Most startups, in my experience, and many larger corporations, do little to none of this, these days.
Let’s take the DeepSeek example. While R-1 is not a healthcare and/or life sciences focused model, it wholly represents true innovation. With the chip / processor embargoes and shortages in China, a hedge fund “math geek” took up the formula of “necessity = predecessor of invention”, and found a cheaper, more efficient way to build and train an LLM. This effort (over time) should NOT have been such a surprise, as at least some folks have been following their efforts for over a year. OpenAI and Nvidia have been funded to the tune of >$24B historically, and Nvidia IPO’ed way back in 1999, and has generated billions in revenue and returns, since. Have either of these entities heard of ‘competitive intelligence’? Well, of course they have…but what were those individuals in charge of that function at those entities doing over the past few years? I do wonder.
To continue with the competitive intelligence example, without exception, every single pitch deck that I have seen over the last few years has missed multiple, wholly relevant competitors from their ‘competitive landscape’ slide. I’m sure the vast majority of VC’s will tell you the same. And, you can never hope to find / track all of the solutions that may end up competing with yours, particularly in these convoluted times of “solution convergence”, i.e., when there are multiple, potential solutions stemming from different industries or technologies that are purposed to solve the same or similar problem. This is and will be increasingly the case. While it is quite natural to ‘keep one’s head down’ working to build the ‘next great(est) thing’, you absolutely must take some time and energy to ‘up periscope’ every once in a while (idk, at least 2X times / year?), and take a look at what those in your space – and, increasingly, in adjacent spaces – are doing and building and communicating.
The message is not all doom and gloom, here! It is simply this: If you plan to raise capital or are contemplating an exit, do your own ‘due diligence’, first, and create and execute the (now) requisite 12- to 18-month plan that you simply must have under these chaotic conditions to increase the probability of achieving your entrepreneurial or corporate aims and objectives.
I’ve talked to dozens and even worked with several startups that simply waited too long to act under these difficult market conditions, and some of them no longer exist. Don’t be the next one / fall victim to this self-constructed trap, and it will indeed be a Happy New Year.
Remember, "hope is not a strategy" and Planning > hope + blind optimism + willful ignorance, anytime and always.
P.S. I hope (!) to add to the above, with another post at some time along the lines of “What I learned as a digital health / HealthTech investment banker”.
P.P.S. My revamped website: https://www.ondigitalhealth.com