Rock Health in Conversation with Bessemer Venture Partners: Promising Companies in Digital Health

Bessemer Venture Partners, a private venture capital firm engaged in long-term venture capital activities.

Having been actively engaged in the healthcare sector for over three decades, the company is also one of the primary investors in Rock Health and maintains a co-investment partnership with it. Rock Health recently discussed with Mr. Ambar Bhattacharyya, Vice President of the company, the evolution of the internet healthcare industry over the past thirty years, his outlook on future IPOs, and the companies he is most bullish on within this field.

Q: Many companies are currently pursuing initial public offerings (IPOs). What do you believe are the reasons behind this trend, and what implications does it hold for fundraising in the internet healthcare sector?
A: Over the past 18 months, the IPO window has opened for biotechnology companies, and in the last six months, we have seen it open for companies in the digital health sector as well. In the digital health space, if you are familiar with Evolent, Fitbit, and Teladoc, you will notice that these companies all have market capitalizations exceeding $1 billion and are gradually maturing to a stage where they can sustainably operate in the public markets. For instance, Fitbit has already become a company with annual revenues of $1 billion; Evolent Health has demonstrated remarkable growth during its transition; and Mindbody, a portfolio company of Bessemer Venture Partners, just filed its IPO application with the U.S. Securities and Exchange Commission this June, and it is undoubtedly poised to become a market leader in the fitness sector. These developments send positive signals to the digital health industry. If publicly traded companies such as Veeva and Benefitfocus continue to show strong market performance, I expect a significant number of companies to file for and complete their IPOs in 2016 and 2017. I would be surprised if they did not.

Q: What are your thoughts on Castlight's IPO?
A: I believe it depends on the circumstances, as I am more aligned with these investments, which require a longer investment horizon. Although there was significant growth during the initial phase of its IPO, the stock price has declined since then. However, viewed from the company’s inception, its growth has been substantial, with trading volumes ranging between $750 million and $1 billion. Its fundamentals have improved, with gross profit margins exceeding 50%. Furthermore, the company has curbed losses and recruited top talent for its sales team. From this perspective, success may lie ahead for them, rather than focusing on its recent trading trends.

Q: Baishang Investment has been involved in the internet healthcare sector for some time. Over the past four to five years, what has left the deepest impression on you?
Answer:Four years ago, we identified that one of the trends in internet healthcare would be consumer healthcare.. Its user base is not targeted at patients, but at consumers. Currently, this trend has emerged and faded in various ways. Initially, it adopted a B2C model, as seen with Better or Doctor on Demand, but many such companies ultimately shifted their core to a B2B2C model (an e-commerce model involving enterprises, transaction platforms, and consumers), which better meets consumer needs.

One interesting observation I’ve made is the sustained rebound of the pure B2C model, particularly in its ability to attract talent and capital.I have noticed that several companies that recently secured investment are shifting their focus back to “2C” (consumer-facing) models to make their products more consumer-friendly.Similarly, we have seen more “Ubers of healthcare,” such as Honor, PillPack, and Pager. All these models and their recent financing rounds are highly encouraging to me; however, it remains to be seen whether these companies can continue to identify attractive direct-to-patient sales channels that enable large-scale profitability without relying on a B2B2C model.

Q: Are you still focusing on consumer healthcare?
A: Certainly. In general, we refer to the portfolio companies in which we invest as our “roadmap,” allowing us to specialize in specific areas. However, we inevitably maintain a balance between overarching themes and particular sectors.We primarily follow two investment logics. First, we track patients along the value chain to identify where processes are disrupted. We then focus on these pain points to uncover opportunities. Second, we follow the money to see where the opportunities lie. We regularly engage with hospital executives, payers, and employers to understand their concerns, and we explore these areas to identify companies or enterprises aiming to address these issues.

Q: What do you value most when choosing a company?
A: We need to undergo a standard model. WeIt will carefully consider its team, market, value proposition, competitive landscape, and unit economics.But compared to these,The Most Important Thing Is the Early Stage, especially when exploring markets that do not yet exist—you must break free from established conventions and think like an entrepreneur: if this company succeeds and this team delivers, what will the world look like?Only then is a risk-return analysis conducted on opportunities, enterprise quality, and market timing.

Q: Currently, apart from the portfolio companies of Boshang Investment, which company excites you the most?
Answer:Collective Health。Imagine an industry that has seen no innovation in the past 40 years yet remains endlessly captivating. Why? If you sought to disrupt it, how would you build a third-party administrator from scratch? How could you leverage technology to boost its gross margins? They adopted an “à la carte” service model, turning it into a compelling advantage for employers. Moreover, there was previously no mechanism for employers to deliver targeted communications or proactively manage employee health. Collective Health made this possible.

Postscript: An interesting point is that the official website of Baishang Investment features a page titled “Anti-Portfolio,” which lists companies it had the opportunity to invest in but ultimately failed to secure deals with or chose not to invest in. Among these missed opportunities are projects even more renowned than its actual investments, such as Apple, eBay, Google, and PayPal.

Compiled by Mao Wanyi | Edited by Mo Renying