What do we do with Zombicorns? What are they?
In a recent appearance on the Digital Health Investor Talk with Steven Wardell, Zoi Managing Director, Dr. Razmi ,discussed the aftermath of the Zero Interest Rate Period (ZIRP) where many companies that raised lots of money at high valuations are now facing headwinds. These companies that might have enjoyed unicorn status previously and now are struggling with growth, raising more money, and saddled with outdated valuations are what we call Zombicorns.
Some are out of business, some are barely hanging on, some have raised down-rounds, some have been acqui-hired, and some have gone on to success. We have had only 5 IPOs in the digital health space in the last 3 years-plus. Also, while the private M&A market has been more active than the IPO activity, most of that activity has been sale to other digital health companies, often at valuations below their last round. At least, this returns a few dollars to the investors.
We can see the impact of all of this on the venture capital fundraising numbers. Limited Partners (LPs) are allocating capital away from this asset class and going for safer bets, such as private debt (if you can call that safe these days!) and public equities and debt. The money that is still invested in VC is going to a few high-profile firms such as A16Z, Sequoia, Lightspeed Ventures, etc. More than 80% of the capital invested in VC has gone into established firms.
On the venture deal side, there’s concentration capital into high-profile late stage companies or early stage founders with pedigrees. Why? we’re in a risk-off environment. General Partners (GP) at VC firms want to get to some exits soon and return capital to their LPs. This is the only way they can successfully raise their next fund.
Steve Wardell and Ron Razmi dive into these topics in the latest episode of the Digital Health Investor Talk.
