The 2014 IPO floodgates have opened, and it's clear a pattern is emerging: Overwhelming success (a lá Castlight), or disappointing underachievement (like King Digital Entertainment). So what's the differentiator across industries for a successful IPO filing? This tale of two IPOs takes a closer look.
Two IPOs, Two Different Stories
Castlight and King Digital are in very different industries, both of which are thriving. King Digital, an unusually profitable pre-IPO company whose games (including the highly addictive "Candy Crush Saga") topped the charts, was seen as a rising star. In spite of much anticipation, "candy was crushed" in its public debut. So what happened? Most investors these days are shying away from the trendy, one-hit wonders (remember Zynga?) While gaming companies will still receive funding in the future, they need to have a bigger plan in place, as it's clear that one-off, flash-in-the-pan mobile games don't have staying power for consumers or investors.
Now let's examine healthcare, an industry that historically has been suppressed by bureaucratic policy, miles of red tape and outdated systems, all of which dictate a far slower pace of innovation and change (particularly compared to other industries). However, the introduction of new government-led policies in the ACA, combined with new demands for transparency in healthcare and the emergence of disruptive technologies has given way to unprecedented innovation to help fix a broken system. As a consequence, in healthcare there is a huge and long lasting opportunity to address business problems with measurable business value. Digital health is solving our biggest healthcare dilemmas, resulting in renewed levels of support: Companies like Castlight are going public with valuations reaching $3 billion, and Practice Fusion and ZocDoc are rumored to be next in the IPO queue. Additionally, digital health funding is smashing records, exceeding $2.2 billion in 2013 (nearly doubling from 2012 and up 450 percent from 2011) according to Mercom Capital Group. Lastly, university endowments and grants are receiving significant financial boosts for research focused on preventative health and wellness.
Two Sides of the Same Coin
As healthcare modernizes and evolves, the need for a new approach is clear. Savvy digital health companies are mirroring creative companies in different spaces, like gaming, and are combining fun and interactive tools for engagement with real solutions to improve health. This "gamified" approach is driving consumers to improve their health and wellness practices -- and to stick with them. Wearables like FitBit are flooding the market (90 million by 2014); health and fitness apps are experiencing four million downloads per day; and sharing health goals and achievements across social media and other platforms are rapidly gaining traction. These technologies are being adopted within the enterprise, as well (i.e. FitBit with Yahoo!, Simplee with Mutual of Omaha).
Beyond consumer facing apps and devices, HR executives need an integrated health dashboard to manage a proliferating number of health IT vendors, benefits, incentives and services. With enterprises easily spending $10,000 per eligible employees on health benefits and incentives, the Chief HR Officer is under increasing pressure from the other C-suite executives to both reign in costs while increasing employee productivity by reducing health-related absenteeism. Healthcare represents 18 percent of the U.S. economy, and is an industry that is screaming for change. U.S. health spending reached $2.8 trillion in 2013, and is projected to increase to $4.8 trillion by 2021, which equates to a sustainable investment opportunity. With such a huge pie, there are many pieces available to companies that can solve real issues and as such, expect to see healthcare growth and digital health IPOs soar in the next few years.
We have just begun to scratch the surface of healthcare innovation, solving real problems that can benefit investors and consumers alike. Future successful IPOs will gauge their value within this evolving market, understanding that individuals are demanding personal health information, programs and platforms that are accessible, sharable, engaging -- and yes, even fun.