Access to healthcare has long been an issue in the U.S., but the sheer magnitude of the problem became apparent during the early days of the COVID-19 pandemic. Numerous digital health startups stepped in to address the plethora of issues, and for a few quarters, VCs flocked to back them.
Many of those startups are still focusing on the same things, like telehealth primary care or chat-based therapy, but there’s little visibility into the adoption and customer acquisition they’ve seen. It’s clear investors aren’t so sure either: VC investment in digital health dropped to just $3.4 billion in Q1 2023 from a peak of $15.1 billion in Q2 2021, according to CB Insights.
I’m not saying the sector is dead in the water by any means, but the founders still finding success are doing far more than merely building off their peers. A recent fundraise illustrates clearly what VCs are finding attractive in the sector, and the types of startups that may find traction in today’s climate.
On Wednesday, digital health startup Caraway said it had raised an oversubscribed $16.8 million Series A round led by Maveron. The startup looks to offer 24/7 access to physical and mental health resources targeted at Gen Z customers, and its integrated healthcare service has doctors and nurses who are always available for text chats and calls. It also offers tools that help its customers maintain and respond to mental and physical health issues in between appointments or when professionals are offline. The app is licensed to operate in 10 states.
When founder Lori Evans Bernstein started the company in January 2022, she had just left her previous startup, HealthReveal, which used AI to help people manage chronic illnesses. Around the time, Evans Bernstein realized how hard it could be for people to get treatments when talking with her niece: After 15 weeks of fruitlessly waiting for appointments to treat a reaction to an unknown allergy, her niece simply gave up and hoped it wouldn’t come back.
“The more I peeled the onion, the more I couldn’t believe the lack of access to care and the experience they had to go through to get the care they needed,” Evans Bernstein said. That story inspired her to start Caraway, aiming to do away with those barriers to accessing healthcare.
Evans Bernstein said the app is designed to provide the 24/7 help users need. For example, if someone is having a panic attack in the middle of the night, they can talk to someone right away with the app or use its resources and activities on their own to mitigate the symptoms. It also offers a resource for people in between appointments with a specialist or a regular doctor. This lets you start getting help right away or avail support to manage conditions or symptoms.
Subscription to Caraway costs $20 a month. While it doesn’t take insurance, its licensed professionals can help patients understand which medications to take and from where based on their insurance.
Sure, there are a lot of startups looking to increase access to care and integrating mental and physical health. Plus, isn’t everyone trying to build for the coveted Gen Z demographic? But there are a few reasons Caraway feels different.
First, the Gen Z target makes a lot of sense given this approach and how online that demographic is these days. And when Evans Bernstein mentioned that Caraway could be a good substitute for college students who struggle to access healthcare, it started to click for me.
I remember going to my college’s health and wellness center when I could actually get an appointment, and no matter what I was there for, I used to get lectured for the horrific crime of drinking on the weekends at age 20. My roommates and I began to avoid it as much as we could.
But several of my peers and friends from other states didn’t have many other options that accepted their insurance. People would just wait until they were home on break to receive care. I think Caraway could fill that gap.
Essentially, Caraway steps right around my major concerns about digital health companies being able to retain customers.
Since the digital health category started to grow, I’ve felt there were too many companies trying to get people to move all of their interactions with healthcare online. While I’m sure some people do want that, I don’t think that is actually a huge market.
Evans Bernstein agreed with this perspective, saying the company plans to use some of this Series A funding to integrate in-person care later this year. Plus, folks who use Caraway in addition to an in-person medical team will get the benefits of both.
Caraway will likely have users who rely on it for the majority of their healthcare, but its ability to be a supplementary source of healthcare — at a cost that isn’t outrageous — gives it a much larger total addressable market than others in the category.
Of course, Caraway won’t be immune to digital health’s struggles. While the startup was able to raise its Series A round, it will still need to find later-stage backers who are still interested in the category and the niche it is targeting.
Plus, the startup must ensure it can maintain its quick-response, 24/7 access as it scales, or the mission to increase access will be moot.
Still, after two years of being endlessly pitched identical digital therapy apps and virtual dentist startups — the logistics of the latter still make zero sense to me — this one stands out.
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