The aftermath of Silicon Valley Bank’s failure is a trending topic among digital health executives and investors this week at the ViVE 2023 in Nashville, Tennessee.
The gathering of digital health companies, investors and provider executives is the first large, industry-specific conference since the bank failed on March 10. The event has around 7,500 attendees, according to organizers.
SVB, a popular bank among the digital health companies and investors, held $78.8 billion in healthcare deposits and investments as of December. It worked with 76% of healthcare-related initial public offerings since 2020.
The Federal Deposit Insurance Corporation took over the bank and sold some of its assets to First Citizens Bank on Monday. The Treasury Department, Federal Reserve and FDIC fully protected depositors, which relieved short-term problems.
For health system executives such as Aaron Miri, chief digital and information officer at Jacksonville, Florida-based Baptist Health, the bank failure highlights long-term concerns. “It does make me pause and look at who is funding certain companies,” he said. “We’re doing our due diligence carefully. I want to make sure that a company doesn’t vanish overnight.”
Digital health companies have been more successful at raising capital than generating revenue in recent years, Miri said. Health system executives are now hesitant to partner with companies that don’t have proven track records of return on investment, he said.
The macroeconomic environment was already challenging for digital health startups before the collapse of SVB. Funding during 2022's fourth quarter was the lowest in five years, and most experts expect this year to be even worse, especially in the aftermath of the bank failure.
Michael Hasselberg, chief digital health officer at University of Rochester Medical Center in New York, said that digital health companies must better articulate their value proposition to health systems.
“Oftentimes, their lens on what their value proposition is, it’s not the same lens I have as a health system buyer,” he said. “We're actually helping them develop their sustainability plan and return on investment [for] health systems wanting to purchase.”
University of Rochester Medical Center is among a growing number of health systems working with venture capital firms to evaluate potential digital health startup partners. The nonprofit academic hospital is working with GSR Ventures.
GSR Ventures partner Dr. Justin Norden said his firm can advise University of Rochester Medical Center on what startups have sustainable business models. “What is their funding status? Are they going to be around in six to 12 months?” Norden said. “Health systems and venture funds can work together in that way to determine if there’s a real path where a [startup] can be big and standalone and then exit.”
Health systems with in-house venture arms can take a slightly different approach. Scott Arnold, chief information officer at Tampa General Hospital in Florida, said the SVB collapse didn't dampen interest in digital health or change how the hospital assesses companies. Tampa General holds equity stakes in some startups, so the nonprofit hospital benefits even when startups are sold off.
“When you invest in a company and you’re incentivized to make money, you’re not necessarily concerned about them being around,” Arnold said. “You’re concerned on whether they’re going to exit properly. Will they be bought, and will that be accretive?”
The SVB failure may have long-term ripple effects on the healthcare space, said Holly Maloney, managing director at venture firm General Catalyst. In the short term, venture funds that did business with the bank will have to find new partners, she said.
“For funds that have smaller asset pools to manage, they’ll have to find new relationships with other banks to support their ‘smaller’ asset base but would still seem like a lot of money [to other banks],” said Maloney, whose firm provided emergency funding to three portfolio companies after SVB collapsed.
Despite these lingering concerns, experts expect digital health technology investments to escalate over time, especially if lawmakers and regulators tighten banking regulations to prevent other banks from failing, Miri said.
“Just like (the collapse of) Lehman Brothers taught us something, I think this taught us something,” Miri said. “I can’t blame the system for failing when you have this infusion of tech and crypto that it wasn’t prepared for. Was it shame on the companies for what happened? Maybe. Shame on the bank? Maybe. But let’s learn and let's go forward. That’s what we have to do as leaders.”