Inflect’s 2023 Outlook for Healthtech Venture Funding
By Rick Newell & Joshua Tamayo-Sarver
As we settle into the New Year, the Inflect team has been making a realistic assessment of 2023’s emerging market trends. We remain bullish on the fundamentals of our thesis: as frontline healthcare providers, we have a deep understanding of the problems facing healthcare and what makes a successful solution. So we will continue to invest in solutions that move care to where the patient is, increase the capacity to provide care, and enable whole-person care.
At the same time, we are mindful of adjusting that thesis to a near future of tough economic times. Over the next two years, healthtech startups should expect some slowdown and tightening of funding. Here’s how that will impact the market as a whole, and our own approach to venture funding:
Healthtech During a Downturn: Less Fluff, More Value
Over the next couple of years, we should expect more layoffs and more unemployment, and most challenging, loss of health insurance for many affected employees and their families. Successful healthtech startups will therefore focus as much as possible on cost-effective solutions across all demographics, not just those on private plans, but patients on government-subsidized plans and just as much, patients in between coverage.
As the healthcare industry enters a tough year with increasing supply/labor costs and decreasing/negative margins, we will see more pressure to drive profitability among health orgs.
For healthtech startups, that will largely translate into declining rounds invested toward non-traditional, out of the box solutions. They will have to show clearly demonstrable outcomes without incurring significant disruptions to current workforce/workflows within the existing healthcare system.
This outlook will also be reflected in the consumer market. In an economically uncertain climate, we expect to see a shrinking appetite for products and services that deliver nominal value for health and wellness value. As the consumer wallet shrinks, startups should concentrate on quickly delivering substantial results.
The Inflect Opportunity
During this massive public market correction, established technology companies are now being sold at a significant discount. At the same time, the greater cost of capital has put significantly more pressure on VC investments, nudging them toward more realistic valuations, and a generally more conservative risk profile.
In this cautious atmosphere, most venture capital firms will wait for a clear market signal, mainly in the form of revenue, before investing in a given startup.
That’s inevitable in a bear-ish climate: As venture firms look to incur less risk, they will want clear revenue signals which can typically support a longer runway between early product development and later revenue generation — which can be further supported by other firms in the venture community.
This actually opens up a promising new opportunity for Inflect and our portfolio of healthtech companies.
Inflect has a unique and concentrated skill set that does not exist within venture capital or other corporate venture environments — specifically, heavy involvement of frontline clinical and operations staff as part of our investment team. This better enables us to identify the real market problem, accurately assess market size, and evaluate whether potential solutions can be practically implemented in the ecosystem in which we work as physicians on a day-to-day basis.
This experience also enables us to identify successful innovations without having to wait for a revenue signal. The overall downturn in this market further increases the value of this competitive advantage, recognizing the investment targets with the most potential — long before other VC firms feel it’s safe to move forward.
Despite this edge, we’re mindful of the challenge before us: Creating real solutions that solve real problems of any meaningful significance take time and resources, usually long before any revenue can be generated. That translates into being creative with our partnerships and investment strategies to ensure that our portfolio companies have a long enough runway to prove themselves to other VCs.
Growing Our Portfolio in 2023
The good news is we believe the consumer market is more willing than ever before to adopt tech products and services into their healthcare. We see that with our portfolio companies including meditation with XR app TRIPP, perinatal mental health with Seven Starling, movement health with Sparta Science, food as medicine with Ayble Health, and family care collaboration with HelloFam.
As a look into the new year, we see a number of consumer-facing healthtech categories with enormous promise. Those include:
- Prevalent, stigmatized, and undertreated conditions, such as incontinence and menopause.
- Vitality-oriented solutions that enable the individual to reach for “better,” such as a resilient mind, rather than only focus on an existing problem, such as depression.
- Solutions that allow the patient-provider relationship to be strengthened, deepened, and more trusting. Creating a healthcare delivery mechanism that is consumer-facing, such as direct primary care, may be the norm instead of the exception.
If you’re with a healthtech startup and you think we can help, please get in touch through our contact form at the bottom of this page.
Rick Newell, MD MPH, is CEO of Inflect Health and Chief Transformation Officer at Vituity. A Masters of Public Health in Healthcare Management from Harvard University, he earned his medical education at the State University of New York at Buffalo and received a Leonard Tow Humanism in Medicine Award for his work in impoverished communities. With Emergency Medicine residency training at Harbor/UCLA Medical Center Dr. Newell currently works in the Emergency Department in his local community, and is a physician executive board-certified in Clinical Informatics and Emergency Medicine.
Josh Tamayo-Sarver, MD, PhD is Vice President of Innovation at Inflect Health as well as Vice President of Innovation at Vituity, where he oversees the discovery, development, and integration of technology in the healthcare space. In addition to being the VP of Innovation, Dr. Tamayo-Sarver works clinically in the Emergency Department in his local community. He holds a bachelor’s degree with honors in biochemistry from Harvard University, a PhD in Biostatistics from Case Western, a medical degree from Case Western Reserve University, a 10x10 certificate in medical informatics from Oregon Health Sciences University, and is a graduate of the Harvard Program on Negotiation.
