Waystar's plans to pursue an initial public offering could kickstart more digital health market activity as some analysts say the need for capital has begun to overshadow the need for additional market certainty.
Waystar, a healthcare payment technology company, said Tuesday it plans to seek an initial public offering that could raise as much as $1.04 billion. The move interrupts a quiet period, as the digital health IPO market has been at a near standstill since early 2022. The last digital health company to go public in August 2022 was Akili, which has since faced its share of challenges. But analysts predict investors' reactions to Waystar's IPO could lead to the market opening back up.
Read more: Will Waystar kick off another wave of digital health IPOs?
During the 2021 funding boom, many emerging digital health companies were given ‘unicorn’ valuations of more than $1 billion and used that to go public. But since then, many of those same companies have struggled to achieve profitability, had to lay off employees, sell lagging businesses and even file for bankruptcy.
Waystar will attempt to avoid the struggles other public digital and health technology companies have endured. A source with knowledge of the company's thinking said other public digital health companies grew too quickly and lost focus, but Waystar has taken a disciplined growth and acquisition approach.
The source declined to comment on Waystar's runway or valuation, but said Waystar views recent technology company IPOs this year, including cloud data company Rubrix and technology company Astera Labs, as a sign the broader market is improving.
Rebecca Springer, lead healthcare analyst at market research firm Pitchbook, said many digital health companies have been holding out for lower interest rates, additional macroeconomic certainty and even the results of the upcoming presidential election before going public, but the need to return money to investors is beginning to outweigh the need for additional certainty.
“Someone had to go first,” Springer said of Waystar's IPO. “Folks have been waiting around for a while."
Alex Lennox-Miller, lead analyst for healthcare information technology at research firm CB Insights, agreed more companies could be reaching the end of their runway, with investors seeking a payout —especially companies which closed later-stage funding rounds from 2019 through 2021.
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“I think we're going to keep seeing this trickle [of IPO activity],” Lennox-Miller said.
Bill Geary, co-founder and general partner at venture capital firm Flare Capital Partners predicted “a small number” of other digital health and health technology companies would try their hands at the public markets this year, with a greater number opting to go public in 2025.
“It’s a really important first step,” Geary said. “These aren't like switches that get thrown and now the sector is back [to] everything is the way people recall it several years ago. There will be a very specific set of judgments that will be made about these early IPO candidates. Some will be successful. Some won’t be.”
Geary and Springer said Waystar’s performance, as well the performance of other health technology and digital health companies with plans to enter the public markets soon, will have downstream impacts on how private equity and venture capital investments are made. Total funding for digital health companies continues to lag despite some signs of stabilization, according to a report released last month from research and digital health venture firm Rock Health.
“This first batch of a handful of companies that will enter the public markets need to simply deliver on reasonable expectations and [have] a quick path to profitability, if they're not already profitable,” Geary said. “Then I think the confidence in the sector will regrow.”
He emphasized healthcare still had a significant need for efficiency and improvements from technology.
Springer and Lennox-Miller said if Waystar and the companies that follow are successful, the IPO could serve as a catalyst for investment and activity throughout digital health.
Springer pointed to the growing number of digital health companies valued at over $1 billion. According to Pitchbook, there were 15 active digital health companies which met that criteria in 2020, but the number increased to 36 last year. As companies grow larger and receive more funding, the investor pressure for payouts increases.
“As you see successful IPOs for companies like Waystar, on private capital side, you're going to continue to see more interest in building healthcare IT companies,” Springer said. “As it's become a little bit more difficult to invest in direct healthcare providers, more firms are interested in the technology side of things — both software and tech enabled businesses.”
