Family offices stay upbeat despite downturn in funding digital health care 

Digital health care — which promises to transform medical treatment and diagnosis by using new technology — has captivated investors in recent years, attracting $16.8 billion in funding at the height of the COVID-19 pandemic in the spring of 2021. But over the past year, amid inflationary pressures and supply chain problems, investing in the sector cratered, falling 72% from its peak in 2021, according to the latest State of Digital Health survey by CB Insights.  

Despite those headwinds, family offices remain largely interested in the sector, with investors around the world making major plays through venture capital and direct investments. 

“Since COVID, there has been a general increase in digital health care interest across the entire investment landscape,” said Dennis Caulfield, vice president of research at FINTRX. “And family offices, particularly those making direct investments, certainly participate in this overarching trend.” 

Hey Jane, a virtual clinic that offers telemedicine abortion care, has seen a surge in investing from family offices before and after the U.S. Supreme Court’s Dobbs decision overturning Roe v. Wade this past summer. The company currently operates in seven states: California, Colorado, Illinois New Jersey, New Mexico, New York and Washington.  

“We’ve definitely seen an increase in interest,” said Hey Jane founder and CEO Kiki Freedman, adding that family offices have invested several million dollars in the startup. “Their motivations are definitely grounded in the mission to increase health care access, but they also clearly see the business opportunity for this to be a large, sustainable enterprise.” 

One of those investors was Denlow Private Trust, a single-family office based in Bermuda. Denlow has made other investments in digital health care, including a fitness tracker company in India and an in-vitro fertilization clinic in Boston that uses advanced technology to measure which egg has the most mitochondrial activity.  

“In general, it’s about transforming health care, which is a very inefficient sector,” says Philip Bickerton, Denlow’s chief investment officer. “There’s a huge opportunity to bring it into the 21st century. Digital health care is possibly one of the most exciting sectors to be in.” 

For family offices, the appeal of digital health care has been both personal and financial, with several investors telling Crain Currency that a personal health crisis motivated them to help fund technologies — such as electronic health records, wearable devices and telemedicine — that address inefficiencies in medicine.  

The pandemic generated a heightened interest in the sector, given the slow response of some government health agencies and the challenges inherent in formulating a vaccine.  

“The COVID-19 pandemic shifted our family office into hyperdrive with regards to health and wellness investing,” said James Carey, a partner at Next Sparc Growth Partners, a Cleveland-based family office. ‘We are laser-focused on direct investments and being LPs [limited partners] in venture capital firms that share our mandate.  

“Private wealth needs to do its part to assist in easing the pressure on the U.S. health care system, as the best prescription or hospital visit is the one that doesn’t have to happen in the first place.”  

Carey said his interest goes beyond treatments and aims at transforming the relationship of individuals to their own health care. “What that means to our family office is investing in how people connect and use the community to get healthier,” he said.      

Earlier this year, the Nashville-based venture firm Relevance Ventures, which has a number of family-office investors, led a $4 million investment in Ombre, which provides at-home microbiome tests and probiotic subscriptions. 

Other family-office investors around the globe, such as India’s Nihar Parikh, are making direct investments. In August, Parikh launched 4Point0 Health Ventures, a fund focused on digital health care. It plans to make early stage investments in startups, aiming to plow $75 million into the sector. So far, 4Point0 has funded the pharmacy platform Saveo, the digital therapeutic startup Fitterfly, elective-surgery provider Glamyo Health and Eka Care, which helps digitize health records.  

Despite their optimism about the sector, family-office investors are under the same pressures as other investors who are holding back from the market.  

In the past quarter, investors have almost completely avoided late-stage digital health investments, according to Rock Health’s recent analysis of deal activity. Though deal count fell 14 percent, the number of smaller and earlier-stage deals remained stable. Slight shifts occurred in funding allocations, with investors more interested in nonclinical workflow solutions — probably reflecting pandemic-related health care staff shortages and employee burnout — over traditionally popular areas like research and development for biopharma and medical technology.  

As for the therapeutic area, mental health startups continue to lead investment activity, followed by startups that focus on oncology care — such as Faeth Therapeutics, which formulates precision nutrition regimens for cancer patients.