PitchBook News - VC valuations feel the squeeze

Despite the dreary dealmaking metrics, determined market participants have found opportunistic footholds, as bargaining power swings further in investors' favor.

More structured equity deals that include provisions for downside protection, dividends, and participating shares are all up for consideration, mitigating risk for investors and preserving startup valuations.

Much speculation remains as to when valuations will bottom out and paths to liquidity will reopen. Most startups are biding their time, taking on debt, or cutting costs, but others—particularly in the life sciences sector—need public markets to access large amounts of capital for clinical trials and R&D. Half of the public exits in Q1 were in the healthcare space.

How long other startups can maintain operations without exit opportunities is a question that will likely be teased out in coming quarters through increasing down rounds.

For more data on valuations and other deal terms, download our free US VC Valuations Report.

 

Cardiology benefits from compelling demand trends—around half of adults in the US have some form of cardiovascular disease. It also turns on two secular trends shaping the US healthcare industry as a whole: site-of-care innovation and value-based care.

The site-of-care theme broadly involves moving healthcare delivery from the inpatient (hospital) setting into other sites that offer equivalent or better care quality while reducing costs and providing a more convenient patient experience—e.g., outpatient centers, homes, retail centers, virtual modalities.

In the case of cardiology, technological progress has enabled more cardiovascular surgical procedures to be performed in ambulatory surgical centers instead of hospitals. This allows PE investors to back independent cardiovascular physician groups.

There is also a significant value-based care opportunity in cardiovascular care since heart disease is a high-spend category that can see improved patient outcomes via chronic condition management, lifestyle improvements, and preventative care.

Our new healthcare services research dives into these opportunities in cardiology, as well as the risks, which include a limited supply of targets and the potential for changing reimbursement dynamics.

It also charts the continued cooling off of PE deal activity in healthcare services broadly—Q1 notched the fifth straight quarter-on-quarter decline—amid a "new normal" of higher interest rates, lower leverage ratios, and sluggish exits.

Download our Q1 2023 Healthcare Services Report.