| The skinny
Today’s exit market for healthcare startups is in a sorting phase. Jack Euston — a longtime healthcare investment banker, who now serves as co-founder and general partner Fountain Health Partners — thinks that the market is separating companies that were built for the 2021 funding playbook from companies built around capital efficiency and operating discipline. “The exit environment is better and more active than it has been in several years, but it remains highly selective. The market has shifted from ‘well-funded growth story gets acquired’ to ‘workflow-embedded, margin-relevant businesses get acquired,’” Euston explained. Disciplined buyer behavior ≠ lower prices
Euston also believes the buyer world for middle-market healthcare companies could continue to expand. “Strategics have learned hard lessons from the last cycle, whether it was Walmart Health shutting down, Walgreens writing down VillageMD, Amazon working through the challenges of One Medical, or other high-profile examples. Buyers are more disciplined today, but when they find strategic, high-quality assets, they will still pay up,” he declared. There’s a misconception that disciplined buyer behavior automatically equals lower prices across the board. Euston said this is not the case — in many situations, it means premium prices for premium assets, and then very little interest in everything else, he explained. Who will stand the test of time?
Euston noted that buyers are increasingly viewing AI not as a feature, but as an engine for margin expansion. They’re looking for AI tools that can actually improve margins and simplify workflows in a measurable way. AI companies that can do this will be well-positioned for raising capital, securing customers and approaching the exit market, Euston remarked. It’s the companies that use AI superficially, or those that remain undifferentiated point solutions, that are much more likely to get commoditized. — By Katie Adams |
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