The margin reckoning of 2019

March 2, 2020

It's been a tough past few months for cash-burning, negative gross-margin startups, e.g., WeWork, SmileDirectClub, Casper. The public market spoke pretty resoundingly that it wants businesses that have a path to profitability. This has resulted in significant losses for private market investors backing 'momentum' deals.

The health-tech world isn’t immune to this trend. We saw dozens of deals in 2019 back on market raising a follow-on round at 50+% discounts to their earlier post-money despite more operational traction, correcting for egregiously overpriced early rounds. Interestingly, most of those deals were previously priced by established, franchise funds, suggesting that a brand name cap table doesn’t ensure follow-on success.

…meanwhile, HV portfolio companies continued strong top- and bottom-line growth

We back real businesses with unit math that works, not momentum hype. In aggregate across the portfolio, we've seen 160% CAGR in revenue for all the years we've been invested. In 2019, our portfolio companies’ revenue almost doubled to $45m (excluding the companies in which our first investment was in 2019). Importantly, this revenue growth is at good unit economics.

As experienced investors who've invested across cycles, we believe this is especially important given where we are in the macro cycle.

Our model has always been to invest in and build companies with sound unit economics and the potential for fast growth in a big market. This provides our companies the flexibility to raise money when it’s advantageous, not because it is necessary.

Now more than ever, we believe it's imperative to continue with our strategy of backing the best and brightest, intrinsically-motivated founders solving foundational problems in this behemoth market of heatlhcare.

go back