Venture investors weigh in on how to stand out after a record-breaking year in healthtech

If fundraising in today's health-tech landscape feels tough, it's because it is. 

With a slow start, the data shows that health-tech funding this year will end up significantly less than the volume of investment in 2021. What's interesting, however, is that current projections show that 2022's level of investing in digital health will be higher than 2020.

While we may not know how long this will last, we have seen this before: A rising tide follows every downturn. For companies starting or established organizations aspiring for additional funding, it's worth taking an honest look, embracing opportunities, and making the necessary changes to their strategies to come out stronger on the other side.

We sat down with three prominent investors during the annual Medallion Elevate conference to discuss the industry's current state, opportunities for founders, and how to catch the attention of investors. 

Elad Gil is a serial entrepreneur, investor, and Co-Founder of Color Health, which provides the technology and infrastructure to power large-scale health initiatives. Laura Veroneau is a Managing Partner at Optum Ventures, a venture capital firm partnering with extraordinary entrepreneurs to fundamentally change health care.

Finally, Julian Harris, M.D., is an Operating Partner at Deerfield, an investment firm dedicated to advancing healthcare through information, investment, and philanthropy—all toward the end goal of cures for disease, improved quality of life, and reduced cost of care.

The conversation is below, and given the breadth of information shared and uncovered, we've split it into two parts. If you're short on time, here are a few quick takeaways: 

• Deals are happening and today looks very different from how they were during COVID. There’s more creativity being brought to the table than at the peak of the last couple of years.
• There are fewer deals at the early stages which is incredibly promising, and founders today are much stronger than they were even six months ago.
• COVID created a mechanism for a lot of things that were pushed back for years to happen finally. There now exists a platform by which founders can build all sorts of super interesting things–which has potential investors on the edge of their seats.

If you enjoy this material, check out more sessions from the Medallion Elevate event. A lightly edited transcript of the session with Elad, Laura, and Julian follows. The conversation has been transcribed and edited to the best of our abilities and please allow for a slight margin of human and machine error. Any questions or concerns, send an email to events@medallion.co for help.

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Derek Lo: Welcome, Elad, Laura, and Julian. It's wonderful to have you all here with us. Let's talk about what's in store for today. We can all agree that we've had a slow start to 2022. Health-tech funding is projected to be significantly less this year than the volume of investment back in 2021. I don't think anyone will find a real surprise there. But what's interesting is that the current projections show that this year's level of investing in digital health will still be higher than two years ago in 2020. What many people are probably wondering is, what does this mean? And that's what we're going to cover in this panel. 

I can't wait to jump in here, but before we do that, if each of you could please introduce yourself and share how you became a venture investor, that would be amazing. So, Laura, I would love to start with you, then jump to Elad and Julian.

Laura Veroneau: Awesome. Well, I'm incredibly excited to be here and excited to be with these panelists and with you, Derek. Thanks for having us all. It's a fun and very interesting topic to discuss in the current environment. 

I'm Laura Veroneau, a managing partner with Optum Ventures and a member of the founding team. I like to say that my background is a mix of different sides of the innovation equation. I started in the startup landscape, running product development for a startup. I spent a good amount of time thinking about the incumbent landscape inside the incumbent world with UnitedHealth Group first and then came to the investing side through that journey. 

I've seen a lot of different angles of innovation over time. At Optum Ventures, we want to be the most simple about it. We are a venture fund affiliated with UnitedHealth Group and trying to, in an agnostic way with over a billion dollars under management, really infuse deep healthcare expertise into the companies we invest in. 

Naturally, with the role that we have and in the position we have, we're trying to bring a lot of that sort of deep understanding of how the ecosystem works and how the large players in the space think to help our companies from a strategy perspective, from a commercial perspective, and operationally more broadly.

So that is kind of me in a nutshell. I'm excited to be before Julian because I never want to be after Julian when he talks about his journey, but for me, I am obsessed with healthcare. I think I'm lucky to have found it early in my career. Knowing myself and my personality, I go 150% or 200% into anything I do. So really marrying the team orientation of venture, the complexity of healthcare, and the impact that all the things that we do can have in the market. For me, it's probably the only way to have true fulfillment. 

Elad Gil: Hi, I'm Elad. I've set my career split between starting, running, and investing in various technology and health-related companies. I got my Ph.D. in biology from MIT, and then I started the mobile team at Google. After Google, I started a company acquired by Twitter, an early API-centric company, and ran various areas there as a vice president of Twitter. After that, I started a company called Color Health. It's a virtualized population health care delivery company. 

In parallel, I've been an active investor. At this point, I've invested in about 40 quote-unquote unicorn companies, including Airbnb, Coinbase, Stripe, Square, Pinterest, and the like, and health-tech companies like Medallion, which I'm obviously very excited about, and I got involved with this because I view technology effectively as a positive force for societal change. 

There are many issues facing us at multiple levels of society right now, and I fundamentally remain a techno-optimist and believe it's a force for good. In parallel, on the healthcare side, obviously, there are enormous issues with healthcare efficacy and cost, and the industry itself is highly resistant to technology-driven change. Still, I'm very optimistic that it will help cause a lot of very positive things for people.

Julian Harris: Hi, being on the panel with some wonderful friends is great. Derek, thank you so much for having me. My background is that I'm a primary care physician and have spent my career in the public and private sector in various roles, trying to figure out how to impact transforming the health care system at scale. I had an opportunity to run the Medicaid program for the State of Massachusetts after my time practicing. I spent a couple of years in D.C. in the Office of Management and Budget and the White House, overseeing most federal health agencies' finance, policy, and regulation, including CMS., and a lot of work with the Innovation Center and the Medicare and Medicaid programs. 

Then I spent four years on the plans side, last running a family of health care services companies focused on value-based care, and care in the home called CareAllies was a part of Cigna. I spent a bit of time advising Google's venture firm. I then came to Deerfield, a large diversified healthcare services fund that invests across all stages of healthcare, in all dimensions, from biotech and medical devices to healthcare services and technology. It's where I've done a lot of work to build out our digital health and value-based care portfolio. 

In the past couple of years, I have stepped into an operating role in one of our portfolio companies, ConcertoCare, where I'm CEO. We are a tech-enabled company focused on value-based care in the home for seniors with complex health conditions. It's been really exciting for me to connect the dots across my clinical work, policy work, and my work on plans. The provider side is something I care about personally as the son and grandson of a father and a grandfather who were caregivers for their wives with complex health conditions. So I'm excited to think about the nexus of technology and its impact on transforming health care for complex patients.

We’ve been here before, but the pace of investment is different

Derek Lo: Thank you, everyone. It's truly an honor to speak with this incredible group today. I'd love to start with a broad overview of the healthcare investment landscape right now, given everything that's going on in the macro environment. 

After a year of record investing last year, we already know this year doesn't look as promising. We've heard that certain firms are even freezing investing altogether. My question is, and Laura, I'd love to start with you; what are the biggest changes you see in the investing landscape? Julian, I would love to hear your take on this as well.

Laura Veroneau: Great question, and we could probably talk about this for 5 hours or so because a lot has changed recently. What I'll say before opening it up to others, to me, this period feels a bit like the beginning of COVID in a strange way. It's because abstractly, I think all firms are behaving very differently in terms of how they think about the market, the opportunity, the challenges, the pullback, generally from a macro perspective to your point. 

It feels like the early days of COVID. It was all over the spectrum of how people were thinking about reacting to a changing market environment in boardrooms. So you had people trying to figure out whether they should hide under the table and save all the runway or should they be more aggressive and think about how a market like this could be seen as a big opportunity from an investment perspective. That was the beginning of COVID, and I feel like right now, there is a shared sort of similarity in terms of thinking about things similarly. 

And it feels like we were in for the last quarter or so. Maybe two quarters and probably through the next quarter or two in that phase where I think firms are broadly taking a step back and thinking about their strategy in the market like this and getting their ducks in a row to figure out exactly how to behave in this type of market. 

That has translated into, at least from my view, what we see at earlier stages compared to what we see on the growth side at Deerfield and the angel side in some respects. 

But it feels like the pace is extremely different. During COVID, if you were running multiple deals, you didn't have the luxury of spending months at a time or a quarter thinking about doing diligence. Now you have a more normal sort of pre-COVID, even maybe less than pre-COVID, amount of time and the luxury to evaluate the opportunities coming through. 

Fewer people or companies are coming into the market in this current period to fundraise unless they absolutely need to or have a strong position to tell their story.

The second piece to this, I would say deals look really different. We did not often see creative deal structures coming to the table during the COVID period. Now you see a lot of creativity being brought to the table for companies that are still really strong. Great companies that may be valued a little bit differently in the market that we look at today are perceived as being different than at the peak of the last couple of years. 

So the deal structures themselves, to me, are different. And then ultimately, I think what folks are looking for in terms of good investment opportunities has shifted. I think growth is very attractive, but growth with sustainable economics and pathways and longer term. 

Julian Harris: I will add on and say I agree with Laura's points. I think one of the things I would underscore because, in some sense, it probably can feel somewhat terrifying for entrepreneurs right now is that we're, in many ways undergoing a reset in the market. We went through a period where evaluations were stratospheric and defied, as I call it, the physics of healthcare. 

In certain cases, there were investors, and in certain instances, tech investors who weren't as familiar with healthcare and, in many ways, sort of inflated the market. Now we're seeing valuations return to where I think healthcare investors might have placed them more broadly. I think that probably it's actually healthy for the companies in the long run. 

Some people may have it perfectly timed and exit to benefit from that period, but in the broad scheme of things, it probably is better for teams and companies to be in this market and have a longer view of how you build value.

Laura spoke of some ways you need to build sustainability and economics over time, but I would say it's not that funds haven't been raised right. There are a number of funds that very recently raised large or multibillion-dollar funds in certain cases. So the capital is there; people are just trying to figure out what to pay. And that, I think, is driving the pause, and people are taking a step back, saying, "Well, we know what we would have paid three, six, or twelve months ago. We're not quite sure what to pay now."

So there's a sort of who goes first [happening], which creates an opportunity for investors willing to lean in and develop a thesis around what the new market or the new normal looks like in particular spaces. And then they do have the opportunity, as Laura alluded to, to propose terms to companies that are more creative than maybe the sort of more vanilla terms that were more prevalent when the valuations were inflated, and also to take the time to do real diligence. The processes were so fast for a period that you had to get a term sheet after a second meeting with the company.

That is probably not ideal in terms of really making sure you understand all the things that you want to sort of diligence from a fiduciary perspective. So I think that there's some benefit to this. Investors who raised funds before the market shift will be looking for exciting management teams and disruptive companies. So people, I think, can exhale a bit, but also be really focused on execution.

Elad Gil: I think the anomalous period is not right now [it's been] in the last two years. If you look at things from a ten-year perspective, fundamentally, nothing has shifted that much from 2018 and 2019, which were all-time highs in the market before COVID happened. If you look at evaluations and you look at the pace of investing, we've effectively reset back two years before we had this incredibly distorted macro environment caused by massive money printing and other aspects that were happening from a macroeconomic perspective. This, of course, partly led to inflation and some of the other things we're seeing right now. 

To some extent, I'm kind of waiting for the other shoe to drop because the only thing that's happened is we've reset to 2018 and 2019, which, again, with all-time highs, what happened is during the last two years, companies over-hired and they raised enormous sums of money on very little traction. 

What we're seeing right now is the clean-up of that. 

Fundamentally, we're seeing people going back and saying, "Well, maybe we shouldn't have paid a billion dollars in market cap for a company with a million dollars in ARR." 

Perhaps that company shouldn't have hired 100 people when it should have had a 15-person team, so now we're seeing layoffs and many of these resets. And that was something that was driven by both investors as well as founders, right? I mean, fundamentally, the entire ecosystem participated in this. 

Now to the points made, we basically reset everything back. And we're facing some potential headwinds from a macro perspective in terms of the interest rate hikes that are coming. So the cost of capital is more expensive. LPs are telling venture capitalists, and LPs are the people who give money to venture capitalists, to slow down their pace. 

So people may still raise their billion-dollar fund, but now they're supposed to invest it over two to three years instead of one year, the pace they've been on over the last two years. And so suddenly, half or a third as much capital is in the traditional part of the venture capital industry. And the hedge funds of others have largely fled to focus on the public because public market valuations are suddenly quite attractive relative to private.

At the later stage of the market, we're dealing with the two-year overhang of excess capital and exuberance. In the early stages, we increasingly see valuations reset. I feel like the marginal founders are being driven out of the ecosystem. So fundamentally, people who I think normally wouldn't start a company started companies in the last two years because it seems so easy and available. I see fewer things at the early stages, which I view as very positive in terms of very strong founders being back in the market. Or I should say that the average founders seem stronger than they did in the last few years. So overall, I think we've just reset to 2018 and 2019, and there's some potential, if there's a recession or other things, for things to get a little bit tougher than they are today.

What makes healthcare interesting to investors?

Derek Lo: Thanks for all these takes; this is all very helpful, and I'd like to transition slightly. Laura, this question is for you, and I would love Elad and Julian to weigh in. Given Optum's deep health care focus over the last several years, an enormous amount of money has flooded into the digital health market. As you all have alluded to, we're likely to see market corrections and consolidation, so how do you think the venture capital market will affect digital health specifically?

Laura Veroneau: I couldn't agree more with the points made about the last couple of years, the proliferation of companies, the types of founders, and how this is a reset that Elad mentioned. I would reemphasize all of those points and think about them again. They were spot on, and how I think about the overall reset in healthcare. In the last couple of years, getting capital has become easy for companies in the space and in healthcare. There's a clear promise in the innovation that can come into this space, both from a care delivery perspective where we've seen a lot of things and maybe more deeply. Even on the operational infrastructure side of the world, true tech innovation is also coming there. I think investors are drawn to that opportunity and the size of the space overall. 

What we're seeing now is much more care being taken with the evaluation of companies and probably much more thought into whether you want to start a company in this period.

So to me, is healthcare interesting? A bias here, but of course. I think there is so much untapped potential and promise to achieve and unlock. We're not even close to hitting that yet. 

But I think it will be much harder to get capital now. And I don't think there should be 100 companies in every single category across the landscape, especially with how healthcare operates. There are only so many commercial pathways in healthcare. Having 500 behavioral health companies going after the same area when there are only so many employers and payers to partner up with and so many ways to acquire patients never seemed like a sustainable way to innovate in the market. 

The natural shake-out that will happen or the natural sort of rationalization will be fewer companies. The strong companies, the category leaders, will be very well positioned, though, through adjustments to how they operate their business and what to optimize for. 

A lot of consolidation and interesting players play roles in that consolidation, as we've seen in the past couple of weeks, and I think we'll continue to see. But I think that's healthy, and I think that's a maturation of digital health or health care innovation that will help the system sustain in the long term.

Derek: Incredible and super well said, thank you. Julian, I would love your thoughts as well.

Julian Harris: Yes, I think one of the interesting things is the interplay between what's happening in the public and private markets. We had this time when there was a drought in other services and technology and other components of biotech and device companies, etc. You didn't have health care services and technology companies having many IPOs at all or certainly not the success or at least seemingly successful IPOs we saw for a focused period. So we've seen a lot of valuation reset in the context of the public markets and companies coming after a period of some compelling IPOs. 

Some of that reset has certainly tempered the enthusiasm for companies planning IPOs to enter the public markets. 

I think some of those companies have to reset their valuations, and the way we talked about before, they think about a sort of a public debut. Some of those companies are questioning whether they want to go and get beat up in the public markets or maybe instead think about strategic alternatives.

Others are thinking about the trend around consolidation. Companies that were competitors yesterday are considering whether there's a one plus one or three before they go public to give them some additional scale and capabilities in some instances. So I think that dimension has been pretty interesting to watch. 

On the earlier private side, there's also greater recognition that many of the pointed solutions people were willing to look at or think about investing in before. To Laura's point around there being only so many buyers, whether peers or employers, those folks only have so much bandwidth. They lost a lot of that bandwidth during COVID. They will have a lot of their attention focused on what may end up being a challenging kind of broader economic environment. And I think that will make it even less likely that they will want to spend time doing due diligence for a bunch of different solutions for every subset of the condition. You are going to see some platform plays that are really successful because they're able to go to those employer clients or those payer clients and say we've either built a multi-platform product across conditions or have different ways of engaging or we've acquired, so now we're coming to you as a multi-platform provider to the sort of drivers of consolidation.

One is economical, but I think another is just a kind of bandwidth and mind space from the purchaser that will also drive some of that consolidation.

Derek: Elad, I'm curious if you also have any thoughts on how the market currently will affect digital health or just markets generally?

Elad Gil: I think fundamentally, many of the big technology trends tend to happen in these multi-decade transformative journeys, right? We're still dealing with the whole transition to the cloud, which is why companies like Snowflake exist in terms of moving data into more cloud-based environments and things like that. 

Similarly, we're on this 20-year journey for the transformation of digital health. And fundamentally, in some sense, there's so much more room in healthcare than in the technology itself, simply because it's an industry that tends to be touched later by technology. It is always ten years behind the trends. You kind of see that there's that famous graph that looks at costs per industry, and you see inflation and education and anything heavily regulated go up in cost over time, while other industries have all been dropping in terms of cost per unit value. To some extent, that's a reflection of technology adoption.

I'm still incredibly bullish in terms of the transformation that's going to happen around digital health. I think there are still lots of really great founders starting things today. And again, I think the average founder is stronger than they were even six months ago.

I know many people now working on things like infrastructure, healthcare productivity tools, and data intelligent use. One can argue that certain things were always five years away from substantiating self-driving cars, or for a while, it was smartphones or mobile devices. I think a lot of that will happen now with A.I. finally being useful through transformer models and other models. So fundamentally, I think this macro transition is happening, and I still know many people are incredibly enthusiastic about investing in the earliest stages of digital health. 

We see a correction in the later stages, in the growth stages, and we're seeing repricing of early stage things, but there's still financing happening. It just feels like they're taking a long time because they're taking as long as they used to in 2018, which is two or three months instead of a week. But that's normal. So fundamentally, I think I'm incredibly bullish on digital health as a trend and what will be happening there in the coming years.

Laura: Derek, maybe one thing to add just about how maybe the ecosystem, I think, reacts in this time and a little bit less on the pure investing side. When you look at the type of innovation that happened in the first waves of this wave of digital health, let's say a lot of the innovation was focused around access and network expansion–some of the low-hanging fruit, if we're being honest. Ultimately the more sustainable approach is much more focused on the ROI, which can mean very different things if you're a Medallion or a care delivery company. But I think the ecosystem has shifted back to thinking about what is the actual ROI of this solution, or have we just added cost into the space by having all of these different slivers in different places. So it might be the actual outcomes on the care delivery side. It might be the reason the operational infrastructure side is so interesting right now is because it is truly going after the costs in health care.

Elad: To play off of what Laura just said, in terms of the first trend, this trend was basics. When I started or founded Color eight or nine years ago, it was hard to convince people that telehealth was viable and that you could actually do things virtually. We were offering genetic counseling sessions through a network of genetic counselors for different genetic results. There was enormous pushback to say, well, if you're not face-to-face with a person in a room, then it's impossible to deliver health care services to them. And COVID, of course, changed that perception quite dramatically. And so the plus of COVID, although there are so many negatives, the plus of the COVID era, is that fundamentally, I think, created this mechanism for a lot of things that got pushed back for years and years and years to happen finally. And I think that now creates a platform by which founders can build all sorts of super interesting things.

Julian: It's great to use that genetic testing example because I think for a long time, people thought about telehealth as something to use for very basic things when someone was calling, and they thought they had the flu or a rash or something like that. The thing that was so striking to me about the shift was not just the broader use of telehealth but the use of telehealth to address complex health conditions. Specialists across categories who had previously shunned telehealth have figured out ways to integrate it into their workflow. In many cases, they are now looking back, saying, "How much time could I have saved if my [...] visits could have been done on telehealth?" I could have focused on higher visits, particularly for folks who do procedures. That awakening around the potential of telehealth as an enabler of complex care and specialty care was one of the greatest insights. People who build next-generation and valuable telehealth companies will not be people on a standalone basis doing just virtual primary care alone.

We have a set of those folks, and to Laura's point, we don't need 20 more of them. We have a group of folks doing that; some at scale now. I think the next set of really interesting companies will be companies focused on a specialty condition and then connecting that to an enabling service in an interesting way. So excited to see that we have a few companies in our portfolio that are doing that today across cardiology, kidney care, multiple sclerosis, and collagen. We’re going to see that trend continue.

Derek Lo: Let's transition the conversation and discuss the business side of things. What shifts have you seen over the last year in terms of what it takes to get investors excited? 

For context, there's been a few things mentioned. It feels like the average founder is getting stronger. It may be scarier to start a business now; people are more committed, and raising capital is generally harder. I think that intuitively makes a ton of sense. In terms of standardizing a business, and for a founder or someone just getting started, what's different now? Is the bar just higher? What does it take to get over that hurdle, given investors have more time to do diligence and so on? Elad, I would love to start with you, then jump to Julian and Laura.

Elad Gil: Sure, I think at the earliest stages, it just comes down to whether you have a strong idea. Do you have a reasonable, credible team? And then you do have a few proof points? The proof points could be anything from, "Hey, we have two trial customers" to "Hey, we've interviewed 100, 50, or ten customers, and here are the insights we've seen in terms of what they want to be built."  

So not much has changed from an early-stage perspective, except people can now spend more time really understanding the market, the problem, the team a bit better, and the team dynamics at the later stage. 

Investors are looking for very different proof points than six or nine months ago.

Growth is now secondary to strong unit economics with good growth, so you need both now. People are looking at more metrics like burn, multiple retention, and whether or not you're not growing on existing customers; your margin structure matters a lot because what's the actual leverage on the business?

So people are going back to more basic metrics that matter from a later-state perspective. What was happening about nine months ago was you'd have these very fast preemptive rounds where very few people would be doing diligence. 

I remember calling somebody to ask about a round they just did and said, "Well, it was only a $7 million investment, so we didn't really do much diligence or call any customers." 

I was shocked that that was the kind of behavior at the time. Instead, what people were doing is they'd hear that a company was kind of hot, and they'd offer them a term sheet, and then three or six months later, there'd be another venture fund coming in on top of that at a 3x valuation shift. Then three months later, or six months later, you'd have a follow-on from somebody else, and nobody was deeply doing diligence. I should say very few people; I'm guessing Julian and Laura were, but most people were not. 

I think people are back to some of these very basic business metrics and just understanding that you need a good growth rate–at least 2x to 3x if you're at five or ten or 20 million in revenue and with a strong burn multiple ratio so you're not burning a ton of cash to have that growth. That's kind of best to read for a company.

Derek: Julian, I would love to hear your take on that.

Julian Harris: I'm going to build on a point that Elad made earlier, which is, I think part of this is a reset for some folks; it's going back to the basics and taking the time to do the kind of diligence that was standard before. 

And some folks didn't shift. As someone newer to the Deerfield team, I will tell you there were definitely some deals we saw, and they were moving really quickly. Our diligence process is our diligence process, and there were times I was frustrated that we couldn't go faster to try to keep up on some of the deals that seemed really hot at the time. But in retrospect, we did the right thing, sticking with our process, and we lost out on some deals. But many of those companies are now having to have some conversations about whether their valuation still makes sense. So it probably is a lesson for all of us. 

There will be another bubble; there will be another period like that where the deals are sort of turning around in a week or two. I think [we need to be] taking some lessons and storing them away so that exuberance doesn't catch up when we need that next moment because it'll come back, it'll happen. It's cyclical.

Laura Veroneau: I wholeheartedly agree with what the two just said. We would be more entertaining here if we all disagreed with each other in a big way, but maybe to give another lens on what gets us excited [is that], we're extremely focused on founder grit and our founders. We love our founders. We think that a lot of the company's success is because of the founders, the founding management teams, and all the different pieces. Derek, that's why we love you, and I think both panelists have said it well. I think this period is exciting because jumping into the market and starting a company in this period means you really want it. You have something you are passionate about and probably have a fair amount of grit and expectation of the sort of adversity that you're going to face and excitement or at least a focus on overcoming that. It is a little bit exciting to see the profile and the grit of founders jumping into the space right now, whether that's brand new companies or the companies trying to figure it out at the seed series or A stage after what has been a very different last couple of years.

So I think the founder's grit at this moment and that showing up in the deals is one of the more exciting things for us to see as we look at the new deals coming through. What we don't want to see as much of, and we don't play, we usually play with existing portfolio companies at the growth stage, but we're not as excited by, as Elad said earlier, the million dollars in error and billion dollar valuation. Some folks are still in the market trying to pull off deals like that. So that, to us, is unexciting and uninspiring. It just doesn't set the company up for success in any way.

Bottom line: great companies will still get funded

Derek Lo: Yeah, it makes a ton of sense. Do you all think we will see digital health funding levels return to what we saw in 2021? Are these going to happen a year from now, five years from now? Or do we think that that period was just incredibly anomalous, and we're never going to see something like that again? 

Laura Veroneau: I don't know what my answer to this question is, to be honest. On the one side, you have a lot of really large funds raised across growth players, early-stage players, and nontraditional healthcare folks with the healthcare focus. 

Now you have a lot of growth funds tied to really successful private equity firms coming into the market, probably the area we've seen most active honestly with our companies in the last couple of quarters. So you have, to Julian's point, a lot of capital there, but you also have a lot of dynamics tied to that capital and the LPs and those funds. If I had to predict, we will see a ton of consolidation in the next six to twelve months, and I think that's going to be once everybody figures out what they're doing from a strategy perspective, takes that step back and figures out how they're going to deploy their capital, comes to terms with some companies that just aren't going to make it, and then causes the ecosystem in many different ways to be creative with consolidation and different funding approaches.

And then I think we'll probably not see the same level of funding. You see the same excitement and commitment to health care, but the funding was sped up so fast by a lot of the growth entrance in the market and changed the time period that deals got done, which pushed all the healthcare investors who wanted to get into some of those deals to move quickly [so there were] a ton of big rounds happening in record speed with not as much diligence. 

If we believe we are sort of back to the pre-COVID period and to Elad's point, it might still adjust a bit because that was an exciting time for investing in the market overall. Then we can expect that a lot of capital deals will probably take a normal amount of time. You don't have 100 million dollar rounds happening in one week, with some pressure coming to speed up every round, so I think we still see far above where it was before the growth of the digital health market. But I don't think in the short term here; I don't think we see the pace of deals causing the amount of capital to flow in the way we saw in the past.

But I do think we will see different uses of capital that might be tied into financial sponsors, helping with some of that consolidation and going after opportunities in that way.

That's my best shot, Derek. 

Julian Harris: I agree with Laura. We probably won't see the same top-line number, but I think great companies will get funded, which depends on entrepreneurs to some extent. If we see people identifying new areas of potential innovation that are different and exciting, that will create another [reason] for people to take a step back. It will determine whether or not funds should get larger, and therefore there's more capital available. It would ultimately depend on establishing new funds and additional dollars going into existing funds. 

There's just a lot of 'me too' happening, and we need to see some step function and differential innovation for funding to get back to the level it was before. And I'd be excited to see that happen. But I can't say that I see the beginnings of that in any sub-sector that we look at so far, so I probably lean to the more conservative end, which is less likely in the near term.

Elad Gil: I agree with that. It's kind of interesting because if you look at the Internet bubble of the late 90s as an analog, and it's an imperfect one for all sorts of reasons, fundamentally, what happened is you had a massive run-up in venture capital and funding of companies and IPOs and everything else. Then everything fell off the cliff for a period of time. Things froze. Everybody was in shock in terms of what to do next. Then you had the next cycle. Then it took, I don't know the exact time period, 10 or 15 years for you to get back to the same funding levels from 2000. But eventually, you got back there. And it's interesting because a number of venture firms that are very prominent today at the time had to explain to their limited partners of people who fund venture capital that venture capital, like any other business, is a cyclical one, where you have boom and bust cycles, you have overspending just like semiconductors or other things. Arthur Patterson, who founded Excel, had to show this curve in past venture capital cycles to his LPs to explain what happened in 2000 and a lot of the LPs in Excel took their money out and said, "We're not funding this room anymore." 

Then, they famously went on to fund Facebook a few years after that. So I think the same thing on a much more minor scale will happen here, where there will be some retrenchment, some people will exit the market, and people will spend the money they have more slowly in terms of investing. 

But fundamentally, we are facing a 20-year transformation in how healthcare is delivered. And that transformation is fundamental, and it will lead to all sorts of very large companies. And that means that fundamentally, eventually, funding levels will return. I think it's [depends on] what is your time horizon and if it's two years, it's not going to get there. If it's ten years, maybe it will. And so it depends on your perspective.

Opportunities are still massive for founders

Derek Lo: Thank you all for sharing. I think it's super helpful because it affects how you operate and when you think about timing the next fundraise and so forth. On that note, maybe the last question is, do you have one or two nuggets of advice for founders and operators? Elad, perhaps we can begin with you?

Elad Gil: Sure. I mean, if you're an early-stage founder, I think the fundamental advice is to find something for which people will pay money and make sure that there's a payer. Because one of the confusing things in healthcare for people who come from outside of healthcare is the person who pays for things is often the insurer, the person who actually decides what you get is the doctor. Then you, the patient, are the one who benefits. There's a little bit of a distorted series of steps in healthcare that don't exist in other market segments. But fundamentally, if you build something valuable and figure out how to distribute it, you'll do very well. 

It's back to basics for a later-stage company if you can [plan to] have 30 or 36 months of cash or more because the environment may get worse before it gets better. So I know a number of people who are going out and doing small top-out rounds will raise another twelve months of cash based on the last valuation or sometimes a slight bump, or I'm seeing other ways for people to make runway last. They may be doing layoffs, maybe doing other things. The flip side is that if your business is working very well right now, this may be the perfect time to be offensive. You can buy other companies or hire great employees; you can price things to get customers from others. You can do all sorts of very aggressive tactics if you have the financial wherewithal to do it. And so really focusing on that financial plan and how you're going to approach it and that operation plan will matter a lot. And so for some people, this is the time you should be going for it. And so it may be a very exciting period for a reasonable subset of companies.

Laura Veroneau: I like moments like this. I see it as a massive opportunity and just an opportunity to flex different muscles and think about things with a new lens and problem-solve in different environments. So for the entrepreneurs and founders, healthcare has so many opportunities. 

We are in the early innings of a very long journey here on the healthcare side, and a lot of low-hanging fruit is still out there; a lot of massive innovation needs to come more broadly, and I think the opportunity is there. We're extremely excited about it, and I think the moments we saw over the last couple of years pushed the industry forward in many different ways. And not to say everything that was done was scalable, but it created opportunities for partnerships and a deeper understanding for the incumbents to have of the early stage innovators that fundamentally changed the actual opportunity for folks overall. And I don't think that that's going backward in any sense. I think the opportunity is still massive, and it has been pushed really, really far ahead because of the last couple of years.

I think the most important thing in healthcare, or one of the most important things in healthcare, is the know-how on the commercial side. And it's very different depending on what you're going after. If you're a vendor, if you're a provider, if you're focused on Medicare, if you're focused on Medicare, if you're focused on something else altogether, and you almost have to start with that after you know what you're going after because the real problems sometimes actually surface because of that structure and because of that know-how. But regardless, the commercial strategy often dictates who wins in healthcare, and I think that can't be overstated enough.

Julian Harris: I think part of the opportunity is for entrepreneurs to take a step back and ask how they can build a truly differentiated product. It's not to say that you can't. Again, there are a lot of great companies that were 2nd, 3rd, or fourth to market. But if we're looking for ways to build on some of the secular trends that Elad was alluding to, it's really about disruptive innovation, and you know it when you see it. I mean, those conversations you had even in pre-bubble times where you meet with a management team you've got an entrepreneur with who's seen a problem, in certain cases, it's not the sexy problem. It's an unsexy problem that people are applying technology differently. 

That's what's interesting about Medallion. You're taking a problem that people have been talking about forever. It has been a pain point forever, and what's happened is that the technology has evolved in some differentiated ways that allow you to take an unsexy but problematic issue and try and bring new technology and solutions to it. 

I think for entrepreneurs taking that view, there really is a lot of opportunity, and there will be investors who want to partner with them, who want to fund them, and have an opportunity to think about how they scale and grow. It is a fun time as an investor because there is an opportunity to be creative.

Deerfield is nothing, if not extraordinarily creative, in terms of how we approach capital structure with partners. And we always try to take a blank sheet of paper and understand what the partner is trying to solve. We have the ability to flex up and down the capital stack to support them, whether it's through equity or debt or debt plus warrants or royalties or any other sort of range of pretty creative financing structures.

There are times when those tools are more and less interesting to companies, but we're at the moment now where nothing is really off the table. We have conversations with folks who would never have thought about debt at this point, are interested in thinking about debt, or are interested or open to more creativity from an equity perspective. So that makes this work more interesting because you do have to put your thinking cap on in a different kind of way. But if this business is in part around meeting your partner's needs, it really is a moment where you can take a step back and understand the business, the product, the strategy, and then the management team's goals.

In some way, we get to be even more service-oriented and try to align what we offer to a potential partner that aligns with their goals from a financing perspective, which is fun for us.

‍Derek: Amazing, and thank you, Laura, Elad, and Julian, for your insights and joining us. I hope folks in the audience walk away with some great insights on where venture is going and what it takes to stand right now as a business. 

Julian: Thanks, Derek.

Laura: Thank you all.

Elad: Take care.

About Medallion Elevate: The Future of Healthcare Operations

At Medallion's inaugural debut, Elevate: The Future of Healthcare Operations, healthcare executives, founders, and leaders came together and highlighted the collective optimism of an industry that's ready to elevate and advance the industry. 

It represented actionable insights, disruptive ideas, and ground-breaking insights from some of the best healthcare leaders, visionaries, investors, and founders. For more information and to view the sessions on-demand, visit: https://elevate.medallion.co/events/medallion-elevate-2022/registration