The ups and downs of the health tech landscape since 2015.
From 2013 to 2014, American startup Theranos was all the rage. The company attempted to revolutionize the health tech industry by developing small automated devices that can carry out blood tests to detect diseases, like cancers and heart problems, with only a drop of blood. By 2015, founder Elizabeth Holmes was named by Forbes as the youngest and wealthiest self-made female billionaire in America on the basis of a US$9 billion valuation of her company.
By the end of 2015, everything had changed. Wall Street Journal’s investigations exposed the company’s inaccurate and misguided blood-testing technology, and Forbes revised its estimate of Holmes’s net worth to zero.
In June 2018, Holmes and former Theranos Chief Operating Officer Ramesh Balwani were charged with nine counts of wire fraud and two counts of conspiracy to commit wire fraud, sending shock waves through the investment community. The trial U.S. v. Holmes began in August 2021 and, in January 2022, Holmes was convicted of four counts of fraud and conspiracy.
So, how has the health tech industry changed since Theranos?
Continued investment in health tech
Many investors had worried that the company’s downfall would make it more difficult for health tech startups to attract funding. Contrary to their beliefs, however, investments in digital health startups in the first half of 2021 actually tripled the total of those in 2016. Venture capitalists have continued to invest in health-tech startups. In 2020, US$25 billion flowed into more than two thousand companies. So far this year, investment has increased to nearly US$30 billion.
Teemu Suna, founder of Nightingale Health, a Finnish health tech company focusing on preventive care, said, “A single bad experience doesn’t tell anything about the industry. That said, no matter what the business proposition is, if one is planning to invest in biotech or health care, the underlying science and tech behind the company should be scrutinized closely.”
“People are more sensitive to scams now—in some ways, there is a pre-Theranos Silicon Valley era and post-Theranos era,” said John Carreyrou, the journalist who investigated Holmes and the writer of “Bad Blood: Secrets and Lies in a Silicon Valley Startup”.
The Theranos scandal has taught investors to become more attentive to exaggerated, fantastical claims made by startups. Prospective investors now tend to become more skeptical and perform more thorough due diligence research, such as poking into the evidence of products. “It helped raise some level of caution—it reminded people to look before you jump feet-first into believing in a technology that doesn’t really exist,” said David Grenache, former President of the American Association for Clinical Chemistry.
The heightened scrutiny has specifically affected female-led health tech companies. “There are many successful and accomplished women who have stellar reputations and who consistently execute and deliver results quietly over many years, yet the flashy infamous story of a con artist somehow gets associated with female entrepreneurs,” said Daphne Zohar, the CEO of PureTech Health, a biotechnology company that develops medicines to combat serious diseases.
Statistics had echoed Zolar’s sentiment. The percentage of funding going to women-led digital health startups has declined in recent years, from 17 percent in 2018 to 12 percent so far this year. Global investment funding for women-led startups dropped 30% between 2019 and 2020, despite it having been a record year of fundraising for startups.
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