What happens to high-flying startups if the pandemic trade flips?

Published November 9, 2020

So much can change in a day.

This morning, news that a trial COVID-19 vaccine candidate had an effective rate of more than 90% shook the financial world. The Pfizer vaccine is reportedly so effective, the company “will have manufactured enough doses to immunize 15 to 20 million people” by the end of the year, according to the New York Times, appears to have given investors the green light to pile back into companies harmed by the pandemic.

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The shift of money from shares that proved popular during the summer is massive and abrupt. Zoom and Peloton are down sharply this morning, while Uber and Lyft are soaring. Indeed, the Dow Jones Industrial Average and S&P 500 indices are up around 4.8% and 3.3% respectively, while SaaS and cloud share are off 3.5%.

Investors are taking money out of companies that were expected to do well thanks to the pandemic and moving that capital into firms that were weakened by the pandemic.

Our question for this morning: what do these changes mean for the economic forces that have broadly favored venture-backed startups? What happens to high-flying startups if the pandemic trade flips? What’s next for insurtech, edtech, fintech and SaaS? Let’s discuss.

Hot sectors, warm futures?

Short-term market movements do not always predict the future accurately, so we should not treat today’s trading as gospel.

That said, it’s not hard to draw some basic conclusions from the trading activity. Here’s what I think we can deduce from today’s stock market activity:

Corporate software spend growth will slow: The broad decline in the value of software companies today appears to indicate that investors expect slower growth in the future. This is especially sharp in companies boosted by the pandemic itself, and, it appears, less acute in companies that were less helped by the COVID-19 economy. Our read? Investors are betting that growth amongst the companies that most benefited from a switch to remote work, for example, will see the greatest deceleration from recent forecasts. For startups, the lesson here is plain. Go look at your public comps and consider your own valuation likely trading along similar lines.

Digital elective care and telemedicine provider Ro raises $200 million at a reported $1.5 billion valuation

Published July 27, 2020

In three years Zachariah Reitano’s startup, Ro, has managed to hit a reported $1.5 billion valuation for its transformation from a company focused on treating erectile dysfunction to a telemedicine service for a range of elective and urgent care-focused treatments.

Through Rory for women’s health, Roman for men’s health and Zero for smoking cessation, Reitano and fellow co-founders Saman Rahmanian, and Rob Schutz, built a company that now treats 20 conditions, including sexual health, weight loss, dermatology, allergies and more, according to a statement from the company.

Image Credit: Zero

Ro also has a new pharmacy business, Ro Pharmacy, which is an online cash pay pharmacy offering more than 500 generic medications for just $5 per month per drug. And the company is getting into the weight loss business through a partnership with the private equity-backed healthcare company, Gelesis.

Ro’s also becoming a gateway into patient acquisition for primary care providers through Ribbon Health, and a test-case for the use of Pfizer’s Greenstone service, which provides certification that a generic drug is validated by one of the major pharmaceuticals.

The company’s $1.5 billion valuation is courtesy of a new $200 million investment from existing investors led by General Catalyst and including FirstMark Capital, Torch, SignalFire, TQ Ventures, Initialized Capital, 3L and BoxGroup. New first-time investor The Chernin Group also participated. In all, Ro has raised $376 million since it launched in 2017.

“This new investment will further our mission to become every patient’s first call. We’ll continue to invest in our vertically-integrated healthcare ecosystem, from our Collaborative Care Center to our national pharmacy operating system. This is just the beginning of Ro’s patient-centered healthcare platform.”

It’s all part of the company’s mission to provide a point of entry into the healthcare system independent of insurance qualifications.

“Telehealth companies like Ro are using technology to address long-standing healthcare disparities that have been exacerbated by COVID-19,” said Dr. Joycelyn Elders, MD, Ro Medical Advisor and Former U.S. Surgeon General. “By empowering providers to leverage their skills as efficiently and effectively as possible, Ro delivers affordable, high-quality care regardless of a patient’s location, insurance status, or physical access to physicians and pharmacies.”

Ro’s new financing is one of several forays by tech investors into reshaping the healthcare system at a time when patient care has been severely disrupted by attempts to mitigate the spread of COVID-19.

Digital medicine is assuming a central position in the healthcare world, with most consultations now occurring online. Reimbursement schemes for telemedicine have changed dramatically and investors see an opportunity to capitalize on these changes by aggressively backing the expansion plans of companies looking to bring digital healthcare directly to consumers.

That’s one of the reasons why Ro’s major competitor, Hims, is reported to be seeking access to public markets through its sale to a special purpose acquisition company for roughly $1 billion, according to Reuters.

IBM, Pfizer launch joint experiment to help measure Parkinson’s symptoms using IoT and analytics

Published April 7, 2016

Physician on working on an iPad. What happens when you put a technology company together with a drug company and try to come up with unique new ways to understand Parkinson’s disease? You end up with a project that uses sensors on the body and in the home to provide continuous measurement of a patient’s symptoms and the impact they have on that person’s daily life, something that’s almost impossible to… Read More