🦠 Microbiome as a Service?

Presented by GOTO Market Institute

Good morning! Investors are tapping into secondary markets, healthcare startups are seeing a surge in funding popularity, and microbiome startups are under heavy scrutiny for unsupported health claims.

• With IPOs stagnant, venture capitalists are turning to the booming secondary market for liquidity events at companies like Stripe instead of pushing for public offerings.

• After a 2023 drought, healthcare startup funding is reviving in 2024 — especially for AI, specialty care verticals like mental health, and value-based models.  

• The microbiome testing industry is facing criticism over lack of standards and unsupported health claims, but startups argue for their scientific rigor in some areas and welcome regulation to legitimize the space.

VCs Are Tapping the Secondary Market for Liquidity

The IPO window may as well be boarded up for most startups in 2024, with very few brave souls attempting to go public amidst the ongoing market uncertainty. But don't shed a tear for those hungry VCs — they've found new opportunities for liquidity in the rapidly growing secondary market.  

Once just a way for early employees to cash out some shares, secondary sales have exploded into a $138 billion market in 2023, with 2024 shaping up to be even bigger. Startups like Stripe are leveraging these private market transactions to provide liquidity to employees and investors at heavy new valuations — in Stripe's case, a cool $65 billion price tag.

Venture firms themselves are getting in on the action too. Outfits like Sapphire Partners deployed hundreds of millions into secondary stakes in 2023, using it as an opportunity to load up on promising startups or trim their positions. 

For founders, these secondaries provide the best of both worlds — achieving those crucial liquidity events for investors and employees, while avoiding a premature, overpriced exit. Now, they can focus on building towards an ideal public company debut when market conditions are more favorable.

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Healthcare Startup Deals Are Picking up in 2024

After a parched investment landscape in 2023, healthcare startups are finally getting a healthy injection of new funding in 2024.

And AI technologies are leading the charge, with companies like medical scribe startups Ambra and Nabla raising sizable Series B rounds. But AI isn't the only vertical investors are throwing money at — specialty verticals like mental health, women's health, and value-based care models are also attracting major VC checks.

All that said, funding isn't being dished out like it used to. Compared to 2021's free-for-all, investors now have much higher standards for healthy unit economics and proven returns before putting their money on the line.

Even as growth capital reinvigorates parts of the healthcare startup ecosystem, other industry experts predict a wave of consolidation across the space. Analysts expect private equity buyers to go on an acquisition spree, scooping up smaller specialty care providers and combining them into larger regional platforms.

But this “acquisition spree” doesn’t apply to all healthcare startups

The harsh reality is that some startups, having already burned through their cash reserves, are now facing two difficult decisions — either secure additional financing with unfavorable terms or permanently shut down their operations.  

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Microbiome Startups Are Facing Heavy Scrutiny from Industry Experts

The microbiome world is having a "gut check" moment. A new report from Science is claiming the industry is full of bad apples — companies making hollow health claims with little scientific backing.

So what exactly are these startups being accused of?

According to clinicians and industry experts: a lack of rigorous analytical standards, no consensus definition of a "healthy" microbiome, and gaps in regulation allowing startups to peddle unsubstantiated treatments. There are even warnings of consumers self-diagnosing or skipping medical care based on the microbiome test hype these startups are stirring up.

Not all founders are these critiques taking it lying down though. Some are validating the critiques, admitting the need for better data, analytical methods, and industry regulation. Fortunately, scientific areas like the infant gut and vaginal microbiomes are being touted as having more established scientific ground.

However, other founders are fighting back by highlighting their clinical trials, use of validated tests, and involvement of real clinicians in diagnosis and treatment plans. No miracle gut pills here, they claim.

Amidst these back-and-forth PR battles, there seems to be one point of alignment — most microbiome startups welcome smarter, tighter regulation of the space. Bringing legitimacy and separating the good seeds from the compost piles could be the fresh breath of air this blossoming industry needs.

Like any revolution, the microbiome movement is bound to have its tumultuous periods as the science catches up to this new entrepreneurial zeal.

Read more.

Parting Thoughts

Well, that’s the tech news for this week. Hit reply and let us know — did you learn something from today’s newsletter?

Until next time!