Some of digital health’s best-capitalized startups are struggling.
A string of healthcare unicorns have announced layoffs over the past few weeks, including Ro, Cerebral, Forward and Calibrate. While these companies are all targeting different corners of the healthcare world — from direct-to-consumer healthcare to virtual mental health support — the layoffs show a similar response to the macroeconomic environment.
It’s a shift in tone for the companies, many of which were valued at over $1 billion and enjoyed a massive spike in customer interest during the pandemic. For early-stage entrepreneurs, this shift brings a set of lessons on the nuances of operating in digital health. Let’s take a look.
The layoffs
Ro, which raised $150 million just months ago at a $7 billion valuation, cut 18% of its staff to “manage expenses, increase the efficiency of our organization, and better map our resources to our current strategy,” its leadership wrote in an email obtained by TechCrunch in June.
The layoff comes at a time when the company, which wants to scale DTC healthcare such as pills and mental health support, is shedding executives as well. Among others, the company has lost its COO George Koveos, GM of Ro Pharmacy, Steve Buck, and most recently, Modern Fertility co-founder Afton Vechery.
In the spring, Ro’s leadership said in an internal memo that they will put “more energy and resources toward fewer initiatives” for the remainder of Q2 and H2. “Narrowing the focus does not mean we will launch any fewer products or services for patients. In fact, we believe it will have the opposite effect. We will increase the speed of innovation for patients,” the memo said, adding that the company will build “new products for existing patients.”
This focus on growth and discipline clearly did not stop the company, which appears to still be hiring, from cutting staff to save on expenses.
Another personalized healthcare play, Forward, struck a similar note in its round of layoffs. The company cut 5% of total headcount “due to the extremely tough market conditions,” a Forward spokesperson said on July 9, declining to provide details on severance and outplacement.
Forward raised $225 million last year to expand customer-aligned healthcare nationwide. The company is not focused on serving individuals with employer-led insurance, and instead wants to scale an affordable, out-of-pocket play similar to Ro. Its layoff was smaller than its peers in percent terms but comes a little more than a year after the aforementioned round, which catapulted the company to unicorn status.
Calibrate, a “sustainable” digital weight loss program, has also bit the bullet, letting 156 people go (24% of their workforce), the company told TechCrunch via an email. Additionally, Calibrate said no contractors or third-party employees were affected by the layoffs.
The New York-based company had raised $100 million in a Series B last year, though its valuation is unavailable. In total, the company has raised over $127.5 million, and per PitchBook, has a nearly $400 million post-money valuation.
Calibrate’s website says it is still looking to grow its marketing, member experience and technology departments.
Cerebral, a telemedicine unicorn, laid off “hundreds” of people “as part of a restructuring to buttress [its] high-quality mental health programs,” a spokesperson told TechCrunch, adding that the cuts mainly affected the support and operations team. The spokesperson did not reveal details on severance given (if the company provided any).
The company was under investigation by the Department of Justice for potential violation of the Controlled Substances Act for allegedly overprescribing prescriptions such as Adderall. This led to Cerebral prescriptions being blocked at various pharmacies earlier this year.
The company has raised over $426 million since its founding in 2020, $300 million of which was announced in a Series C in December last year. Cerebral is valued at $4.8 billion, according to Behavioral Health Business.
What do these startups have in common?
These four layoff stories share a through line that reveals the unique challenges of being a venture-backed healthcare business. Fast growth is always difficult, as companies need to balance a need for exponential growth with actually delivering an experience that meets that growth’s demands.
Healthcare startups have to manage a particularly sensitive tension. They need to grow quickly, but if they fail to provide services as advertised, they put customers’ health (or access to health services) at risk when things don’t go as planned.
Carrie Singer, founder of TheraHub and a licensed psychologist, agreed, saying that because these companies scale fast, they are running their operations like Uber.
“They say, ‘We’re just connecting care seekers and care delivers,’ and that’s kind of a dangerous model, because they’re not up to date on licensure regulation,” Singer said. “Let’s just say we’re getting these people served, but are they really being served with people who have a license, you know, who have good quality training? A lot of these platforms don’t allow clients to choose who they’re matched with.”
The demand for venture-style growth can create a faulty system that may ultimately provide patients with poor care, which could end up being worse for a patient than no care at all, Singer said.
It’s not like the companies are unaware of the risk. For example, employees at Ro last year spoke about how the company’s booming valuation led managers to pressure teams to keep launching products, regardless of their efficacy.
The employees said they started to feel like the deals were just a smokescreen for other struggles and done for publicity, as longtime products within Ro’s suite of services struggled. Leadership apparently focused on marketing the products before they were even integrated into the platform. “Packaging is packaging, are we actually delivering something people want?” an employee told TechCrunch at the time.
There is a silver lining, though: These layoffs may have a lasting influence on how up-and-coming founders evaluate and assess patient care.
“I think now there’s gonna be more of a focus on quality and outcome measurement, and not just how fast can you grow. But are you turning a profit? And are you delivering a service model that can last?” Singer said.
The advantage of being an infra play
TechCrunch polled a number of early-stage digital health founders to understand how seriously they’re viewing the late-stage correction.
One startup, SteadyMD, launched in 2016 with a vision to scale primary care, and initially looked a little like Ro and Forward. As an early part of that process, the company built a suite of tools to work with EMR integrations, doctor-patient communication channels, digital recruiting and forecasting software and prescription referrals and operations. The burdensome process of setting up all those separate tools struck a chord with the co-founders, and they pivoted the company to where it is today: an “AWS for healthcare.”
“The cuts we’re seeing in the market are a clear signal that digital health companies are beginning to look at operational costs, unit economics and gross margin in a more focused way,” SteadyMD’s co-founder and CEO, Guy Friedman, told TechCrunch.
“Even with compressed valuations [and] more limited funding, many digital health companies are still growing in terms of visit volume,” he added.
Friedman feels that since SteadyMD is an infrastructure play, startups may find value in leveraging its services as they look to cut costs. For example, companies that rely on clinicians can use SteadyMD’s network of clinicians, turning a fixed cost into a variable cost. He said the company has grown over the last year due to filling these gaps but did not provide any growth numbers.
Another infrastructure business, Healthie, has been profitable for the past four years. In a statement to TechCrunch the company said for the fiscal years of 2020 and 2021 they operated with FCF, EBITDA, aEBITDA and GAAP net income. Healthie offers a virtual stack of software to help providers and startups handle back-office operations. Its CEO and co-founder, Erica Jain, views recent workforce reductions at digital health unicorns as a side effect of being “trailblazers.”
“You are working within the confines of legacy systems — hospital systems, payers, providers and stakeholders — that are entrenched in traditional processes. That, in many ways, changes the nature of how digital health operates relative to other industries like fintech or consumer tech, where technology can really take off overnight,” Jain said. Venture capital, she added, helps these businesses experiment and “push boundaries forward.”
While she’s taking notes from the unicorns, Jain has bootstrapped her company for the past few years and has no plans to rely on venture capital. Weighing the pros and cons of growth at all costs versus profitability, she says, has caused her to focus more on capital efficiency.
“We offer business-critical healthcare infrastructure,” she said. “I cannot run our business being reliant on venture capital when I tell my customers that we are effectively the operating system for how you operate.”
Editor’s note: This story was updated to correct the number of employees laid off at Calibrate to 156 from 360.