Thread by @aikeho

1/ @ACME’s invested in iconic D2C health companies like Curology, Pillpack, Brightside, & Tia. I ♥️ this space.

I take 1k+ mtgs/yr & invest in ~5 co.

Out of 955 emails,👇 are top reasons why I passed on D2C healthcare startups last year (🧵/18)

2/ I believe in founders & care about this model, so I always try to write a thoughtful email explaining my reasoning when I pass. In part this is bc passes aren’t forever – I’ve subsequently invested in companies I previously passed on!

Side note: I’m writing as I wait for my annual post-cancer check up at a 🏥. Walking into a hospital is a universally vulnerable experience for most humans. Participating in #JPM22 convos while also viscerally going through patient experience reminds me of what’s important here.

3/ D2C in healthcare means direct-to-customer acquisition or monetization or both. It started in mid 2010s when companies like @CurologyUSA @wearehims & @ro pioneered D2C acquisition (FB/IG/GOOG) + monetization (out-of-pocket payments).

4/ As a cancer survivor who had to navigate the US healthcare system (another story for another time), I love D2C because it incentivizes better patient experiences. Without strong value props, users won’t sign up or keep paying.

5/ However, not every service is cut out for the D2C model. Bc patients pay, irrational human behavior is pervasive. Patients are more willing to pay out-for-pocket for value props that cater to their identity, convenience, etc…

6/ …vs. long-term care like managing chronic conditions. It is an emotional purchase and why the latter still relies primarily on employer biz model. D2C model to treat most chronic conditions wouldn’t efficiently acquire patients directly.

7/ When evaluating a potential D2C investment, I look for strong consumer pull = patients that are self-motivated to take action vs. knowing something is good for them but not having the emotional impetus to solve the pain point.

8/ It has never been easier to start a D2C digital health company. You can simply be a marketing org & deliver “care” (we can debate quality later). You can outsource providers with @steadymd, pharmacy capabilities with @truepill_rx.

9/ W lower barriers to entry, competitors abound. It’s harder to stand out + more $ bidding on same keywords, inevitably driving up CAC. Care delivery alone isn’t defensible; it’s easy to turn into commodity care. So how do you differentiate?

10/ The most important factor for a potential investment in D2C digital health is true defensibility. Increasingly that means I’m investing in *a tech company that delivers healthcare vs. a healthcare company that delivers tech.*

11/ Throwing more humans at care demand is a linear growth path. With provider shortages across so many specialties, winners will exponentially grow supply while maintaining superior clinical outcomes.

12/ I’m increasingly fond of hybrid D2C approaches. One example (out of many): partnering w/ payors for reimbursements >> monetization not on patients. When patients are paying no out-of-pocket costs, CAC decreases and LTV increases.

13/ Important note: Getting *national* contracts w/ insurance companies require demonstrably measuring and proving quality clinical outcomes. Most D2C digital health companies today likely don’t pass this bar. I invest in the ones that do.

14/ On metrics… 2021 was a brutal acquisition year. CACs doubled for many D2C startups. Majority of new D2C digital health cos have <2x LTV:CAC ratio. Not great. For $1 you invest in acquiring a customer, the business gets <$2 back.

15/ We don’t know if CAC will stay at current levels, decrease, or increase (great topic for later). Having a <2x LTV:CAC is tricky as it doesn’t leave a wide enough buffer in case things turn for the worse. 3x is healthier territory for me.

16/ Market is silly rn w/ capital sloshing around. Many startups raised $$ w/ 1-1.5x LTV:CAC. The 1.0x getting funded boggles me. There’s no profit! It’s not a business! Just relentless customer acquisition to cosmetically drive revenue up.

17/ And that’s all, folks. Know a consumer-first digital health company that can successfully navigate the challenging dynamics above? I’d love to hear about it.

18/ Massive thanks to my tribe of digital health investors+editors @lesliejz @deenashakir @chrissyfarr @AlyssaJoyJaffee & my brilliant partner-in-crime @maxkluo for helping getting these💡down to 📝 + keeping me sane in remote life.