Healthcare venture funding took a nosedive in 2023 — and later-stage startups were hit particularly hard.
As companies at Series B or later struggled to grow into their often lofty valuations and faced few options for exits, some healthcare firms that have historically backed growth-stage startups have now pivoted to focus on seed and Series A deals.
But Dr. Galym Imanbayev, a partner at Lightspeed Venture Partners, plans to go after more growth-stage deals this year, he told Business Insider.
“Frankly, I’m trying to take advantage of this opportunity,” he said. “These are moments where companies usually find later-stage investors, and now they’re not finding them.”
As a multi-stage VC fund, Lightspeed has an advantage in its exposure to both early-stage and later-stage healthcare markets, Imanbayev said. And many later-stage healthcare startups still have plenty of room to grow, he said.
The first one to three years are often slow-moving for a healthcare startup, too, as it works to get its first partnerships with payers or providers, he said. This isn’t the case for startups in areas like consumer tech, where startups can more easily hit the ground running.
Growth-stage bets typically require VCs to pay more money per share of the company, which may yield less significant returns if a startup gets a successful exit. But they also tend to be less risky, since later-stage startups should have revenue streams or partnerships that demonstrate their value.
“I’m willing to pay for that because I’m trading off a material amount of risk — the execution and integrations that happen early on — and yet still maintaining a good amount of the reward,” Imanbayev said.
Imanbayev pointed to four areas of healthcare where he’ll consider making growth-stage investments this year.
1. Value-based care
Healthcare’s move to outcomes-based reimbursement models — wherein doctors get paid based on the quality of care they provide, rather than on the services rendered — has been slow-moving. But Imanbayev said he sees tremendous potential for returns. Lightspeed led value-based care startup Aledade’s $260 million Series F in June 2023, an unusually large deal as other investors cut much smaller checks.
“There’s probably no bigger market than value-based care, than the transformation of our providers,” Imanbayev said.
The application of value-based care models to different parts of healthcare, from primary care to specialty care, opens up plenty of opportunities for investment, he said.
Plus, previous exits by other value-based care players, including Oak Street Health’s $10.6 billion sale to CVS and One Medical’s $3.9 billion sale to Amazon, could set the stage for more lucrative deals down the line.
2. AI for clinical documentation
Many applications of AI, including generative AI, to healthcare will face regulatory barriers and perhaps not live up to the immense amount of hype around the technologies, Imanbayev said.
But AI when used for clinical documentation — like automating doctors’ notes or prior authorization forms — can quickly bring a high return on investment for a healthcare business, he said.
VCs have continued to back startups building that tech even as healthcare funding slumps broadly. Medical scribe company Nabla grabbed $24 million this month, while its rival Abridge landed $30 million in October.
Although generative AI technologies are relatively new, Imanbayev said he’s still tracking how growth-stage companies are applying the models to their businesses, and wants to back startups that are collaborating closely with clinicians and health systems to make that happen.
3. Health data sharing
Data interoperability and price transparency have been buzzy phrases for years in healthcare, and a number of startups, from Turquoise Health to Health Gorilla, have cropped up to tackle the litany of issues under those umbrellas.
Imanbayev said he’s now “waiting eagerly” for a handful of those now-maturing companies to hit certain benchmarks before he’s ready to back them.
One of those benchmarks is patient engagement, like how often a customer goes to the startup’s database to check pricing data, Imanbayev said.
“These engagements are extremely important because it gives signal to what economic rent this company could command going forward,” he said.
4. Pharma tech
Specialty drugs made up about half of all drug spend in the US in 2021, and the prominence of these costly drugs has only increased since then. The overwhelming majority of FDA drug approvals in 2023 were for specialty medications.
“The tsunami of biological and specialty drugs that are just consuming our healthcare spend, we are structurally unprepared for that,” Imanbayev said. “From payers to PBMs to manufacturers, there are ways to improve.”
Imanbayev said he’s interested in solutions that bring pharma companies closer to patients, such as by incentivizing clinicians with value-based treatment models to share real-world data with pharma companies for improved patient treatments.
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