Digital health startups declare bankruptcy following rough funding year

Digital health startups are having a hard year.

Health IQ is the latest startup to file for bankruptcy, following in the footsteps of Babylon Health and Pear Therapeutics, despite raising roughly $200 million from top venture capital (VC) firms, including Andreessen Horowitz. Babylon and Pear both reached valuations of more than $1 billion each before filing for bankruptcy.

The digital health landscape has struggled in 2023 with fewer investors and funding deals as well as smaller deal sizes. The year is on pace to be the lowest digital health funding year since 2019, according to digital health strategy group and venture fund Rock Health—and the consequences are starting to show.

And filing for Chapter 7 relief on August 9, Babylon Health was a virtual primary care provider that was once considered a digital health “unicorn,” meaning it was worth more than $1 billion. In its bankruptcy filings, the startup reported that it owed $389 million and had $309.3 million in assets, Forbes reported.

Pear Therapeutics, a prescription digital therapeutics pioneer, also filed for bankruptcy in early April. Pear’s prescription apps were designed to treat substance use disorder and insomnia. Last year, the startup reported a $123.4 million operating loss with $12.7 million in revenue, Forbes reported.

In addition to these bankruptcies, digital therapeutics company Akili Interactive said in September that it would pivot business models after struggling to find success with its prescription model. The company reported just $114,000 in revenue and $15.3 million in expenses in its Q2 2023 earnings report.

Zoom out: The healthcare industry at large has seen 40 bankruptcies in the first six months of the year versus 46 filings in all of 2022, according to healthcare restructuring advisory firm Gibbins Advisors. The firm said that if the trend continues at this pace, 2023 could see a 74% increase in healthcare bankruptcies compared with 2022, and a 300% increase over 2021.

Robert Lemons, a partner at the law firm Goodwin, told Forbes he expects to see a continuous rise in healthcare bankruptcies through 2024.

“High interest rates and limits on borrowing availability is huge,” Lemons told Forbes.