Olive AI is the latest digital health “unicorn” to go out of business, but industry insiders say it won't be the last.
The company, which developed technology to help providers and insurers automate the revenue cycle, sold its remaining assets Tuesday to Humata Health and Waystar in separate transactions and is winding down its operations. Olive AI is the most recent failure of a digital health startup that became a unicorn by achieving a valuation of more than $1 billion.
Investors say more failures are on the horizon as the industry continues to adjust to a different economic environment.
“I think we’re going to be in for more news like this over the next 18 to 24 months until everything gets right-sized,” said Keith Figlioli, managing partner at venture capital company LRVHealth, an investor in Olive. “That’s what we’ve been saying to our investor base and all of our companies for over a year now. I’m not shocked by any of it.”
Others that have folded in the last year include digital therapeutics company Pear Therapeutics, which filed for Chapter 11 bankruptcy in April and artificial intelligence company Babylon, which filed for Chapter 7 bankruptcy after a proposed deal to go private fell through. Both companies sold their remaining assets.
Olive was one of the most well-funded startups in digital health during the industry’s boom period. In December 2020, it received $225 million in a funding round led by venture firm Tiger Global that valued Olive AI at $1.5 billion. Seven months later in July 2021, it received $400 million in a round led by investment firm Vista Equity Partners that brought its valuation to $4 billion. Altogether, the company raised $832 million, according to research firm Crunchbase.
Many of the failed companies grappled with trying to get their digital health solutions adopted by health systems and insurance companies, investors said. That process can take months. Buyers are also moving away from singularly focused digital health solutions and looking for products that can address multiple areas of care.
“It’s really hard,” said Prateesh Maheshwari, managing director at venture capital company Maverick Ventures. “How many big businesses are there really in healthcare?”
Figlioli said he is steering companies in his portfolio toward solving a narrowly defined problem. Companies that try to be everything at once, often after having received hundreds of millions of dollars in funding, typically don't work out, he said.
The days of receiving hundreds of millions of dollars in funding may be in the rear view mirror. The average digital heath funding deal in 2023 is $23.5 million, according to an October report from research and digital health venture firm Rock Health. That would be the lowest amount since 2019 if the funding trends continue through year's end.
“The macro environment has corrected this for everyone,” said Maxim Owen, partner at digital health venture capital company Wavemaker 360. “Capital is less available, and investors have to figure out how to grow sustainably and hopefully, profitably.”
Maheshwari said he is focused on assessing the long-term potential of startups rather than the short-term gains and on the relationship between investor and founder. During the low interest rate, freewheeling environment of 2021, that got away from investors, he said.
Investors say the ideas behind some defunct startups, including Olive, should not be dismissed.
“The reality is companies fail for a number of different reasons,” said Alyssa Jaffee, partner at digital health venture capital firm 7wireVentures. “That doesn’t mean there isn’t still tremendous opportunity for making change and making headway with what we’re trying to build in digital health.”