Livongo just surged in its IPO. A top early investor told us 3 key considerations for digital health startups that want to follow in its footsteps.
- With the initial public offering of Livongo, we're in the middle of a wave of digital health companies testing out the public markets.
- Hemant Taneja is a managing director at General Catalyst, which has a 22.4% stake in Livongo.
- Taneja laid out three criteria a digital health company needs to hit before considering going public.
- Click here for more BI Prime stories.
Digital health company Livongo started trading on Thursday, surging 50% after pricing at $28 a share on Wednesday night.
The IPO is be the culmination of a lot of work on the part of General Catalyst Managing Director Hemant Taneja, who helped build Livongo and led its Series A funding round in 2014, the year it was founded. He's been on the board since 2014 as well.
Livongo operates programs to help care for people with diabetes and other chronic diseases using a glucose meter and other devices. Typically, big companies and insurers pay monthly fees for the care. Livongo's bet is that by using technology, coaching, and other tools, it can manage those chronic conditions better and ultimately at a lower cost.
General Catalyst now owns 20.1 million shares, or 22.4%, of Livongo, worth $844.2 million at Livongo's current share price of $42.
Behind Livongo, there's a slate of other digital health startups that have the potential to go public. Private health-tech companies have racked up big valuations in recent years, but few have gone public.
Taneja was an investor in Snap and currently backs companies like Stripe and health startups Color and Mindstrong Health.
The way Taneja sees it, there are three crucial questions a company needs to answer before considering going public, he told Business Insider in a recent interview.
- Do consumers truly love the product? Consumers, in this case people managing chronic diseases like diabetes, aren't the ones footing the bill for Livongo's services, but they're still an important factor. The company points to its net promoter score, one measure of consumer loyalty, which is 64 on a scale that goes from -100 to 100. "They've actually provided a healthcare service that consumers love like they love companies and other products in other spaces," Taneja said.
- Do you have the data to show that you can make people healthier? Livongo has published some data on its programs, including a 2017 paper in which the company took a look at the blood sugar levels of 4,544 people enrolled in Livongo's diabetes program between October 2014 and December 2015. Members in the study had an average 18.4% decrease in the likelihood of having a day with low blood sugar, and an average 16.4% decrease in the likelihood of having a day with high blood sugar in the following 2-12 months on the program compared to their first month. So far, the company hasn't published a study evaluating the program compared to a control arm, but the company has studies looking into that underwayy.
- What's the economic case and is there alignment? In the case of Livongo, the company is selling its program to employers and health plans, so the people who stand to benefit from better health aren't necessarily the ones paying for it or deciding to adopt the program. That means it's key to show how everyone stands to benefit. For instance, Livongo said in its filing that the company saves over $1,900 annually in healthcare costs for the typical Livongo member or their employer.
Once those factors are in place and the company has enough scale, that's when the conversations around going public can start.
"To me that's when you should be thinking about going public, when all three of those have fallen in place," he said.
Setting up a blueprint for future health-tech startups
Taneja's optimistic that we'll see more digital-health investment after the success of companies like Livongo.
"If you go to technology centers like Silicon Valley or here in New York, there's a lot of really well-intentioned technology people who want to work in healthcare," Taneja said. "To show them a case where here's a blueprint of how to build a company successfully, how to think about product-market fit, and how to build a true mission-driven company successfully, I think as they see that I'm optimistic that this will lead to others tackling different problems in healthcare."
Taneja came together with former Allscripts CEO Glen Tullman to found Livongo. Tullman's background in healthcare combined with Taneja's experience in tech made for the right founding team, Taneja said.
"The fact that we really thought about putting all these pieces together in the beginning, as opposed to, we can infuse the healthcare understanding later or the AI understanding later or the hardware product designer side later," Taneja said. "That to me was the secret and hopefully creates a bit of a blueprint for more businesses in this area."