Health Tech

“Culling of the Herd”: How One CEO Believes SVB’s Failure May Accelerate M&A in Healthtech

Included Health CEO Owen Tripp believes that the sudden demise of Silicon Valley Bank may actually lead to a "culling of the herd" as healthtech companies yet to prove their value will stop functioning as standalone companies or get bought by larger companies with stable revenue and a proven business model.

Despite the government stepping in last week to protect all depositors after Silicon Valley Bank’s unceremonious demise almost overnight, there’s still fear about the stability of the banking system. High-interest rates and unnecessary risk-taking fomented by a looser regulatory environment have combined to create a dual threat for smaller, regional banks. Complicating this scenario is online madding crowd where social-media-driven frenzy and anxiety can fell even a bank with more than $200 billion in assets.

Nonetheless, for healthcare, the demise of SVB, a fixture in the world of healthtech and tech lending and banking, might actually mean robust startups with a strong value proposition get funded in the future. Those smaller companies that that got financed before times got tough — those with annual revenue of less than $100 million and with an as-yet unsteady commercial standing — might see themselves get gobbled up by larger, more financially-stable healthtech companies.

Owen Tripp, CEO of San Francisco-based Included Health, puts his company in the latter category. Included Health helps patients access virtual and in-person urgent care, primary care, behavioral health and specialty care. The company, which rebranded after the merging of Doctor on Demand and Grand Rounds, also provides tailored navigation and advocacy services.

In a recent interview after SVB failed, Tripp said he wasn’t worried about liquidity and ability to make payroll when it shut down unceremoniously though the company did have some assets there so did experience anxiety.

“I‘ve been leading and growing tech companies for two decades, and I’ve never … seen anything like that. I think it was like the early days of Covid in the sense of you had this big threat that seemed fast moving, you didn’t know how contained it wouldn’t would be,” Tripp recalled.

He thanked the federal government for its “clarity” and its role in soothing very ruffled nerves after SVB collapsed. But beyond the personal anxiety that many startups undoubtedly endured, the collapse has ramifications on how startups get funded, Tripp said.

SVB and other banks used venture debt to loan money to startups that were not profitable and this financing model had worked well in the past for these banks. With the collapse, this route of fundraising may no longer be available, Tripp said.

“What you’re gonna see in the weeks ahead is, is a bit of a culling of the herd, which we long expected, where investors in these companies, the really sort of not-proven ones are gonna say, ‘Look… you’re now on the clock to figure out what’s gonna happen here because it’s quite possible that … existing capital structures that you were planning to take advantage of are no longer gonna be there.”

And it’s not just the lack of access to venture debt in the future that founders have often taken advantage of when venture capital was hard to raise. Even venture capital and private equity is tightening up. The public markets have been less than kind to digital health stocks and so raising money will become much tougher with all these pressures. Which only means one thing – as companies re-evaluate their options, selling their technologies to larger companies may be the only option left.

Tripp stressed that for well-capitalized companies like Included Health with proven products in the marketplace, this “culling of the herd” will actually bring new and interesting buying opportunities.

“So there are gonna be a number of companies of which Included Health is certainly one of them, but we’re not the only one who have built a strong balance sheet, who have built a really strong track record with their clients, who have really deep-pocketed investors and have been, frankly, in a lot of ways waiting for this moment, not this crisis but we’ve been watching it,” he said.

In other words, expect M&A to further accelerate as liquidity pressures comes into stark relief. Some consolidation was already expected and occurring since last year given the macro economic environment and the focus on value and ROI. The failure of SVB simply ratchets up the phenomenon further.

For Included Health, the buying opportunities will be around the company’s primary thesis of integrated care.

“So we have been telling everybody who will listen to us that integration is the innovation that healthcare needs right now — that we don’t need more standalone things that operate, you know, in slim silos against very nichey populations,” Tripp declared.

Such solutions may have interesting clinical models but do not have the engagement necessary to scale, which means theres’s no dent made in lowering costs and improving outcomes, he said. Given this perspective on integrated care, Included Health is deeply interested in primary care and behavioral health.

“Primary care that sticks with you, that’s personalized to you, that is run by the same team against your needs now and into the future. Behavioral health that’s accessible within hours or days that, again, is customized to your need, but also gels with the primary care. So it feels like a consistent practice. It doesn’t feel like two doors or two teams, or two things that you’ve gotta go figure out …,” he said.

Of course, businesses failing and startup founder dreams getting dashed in an unforeseen event is never a good thing. However, it is important to note that over the last few years many startups escaped investor scrutiny as money was cheap and everyone and their dog wanted to jump on the digital health bandwagon. So a lot of companies ended up getting funded – be it with venture debt or equity – that perhaps shouldn’t have been funded to begin with.

And now the reckoning or “culling” may be here.

Photo: maxsattana, Getty Images

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