Why a startup that wants to upend how you go to the doctor raised a fresh $118 million instead of going public

  • Telemedicine startup 98point6 said Thursday that it raised $118 million in Series E financing from L Catterton and Activant Capital.
  • Cofounder and CEO Robbie Cape told Business Insider that although the startup had just raised funding in April, investor interest skyrocketed during the pandemic. The additional funding will be allocated heavily toward research and development in areas like behavioral health, Cape said.
  • Investor interest in telemedicine and digital health startups has not been confined to private markets, with several acquisitions and public debuts resulting from increased public market interest.
  • Cape said that pursuing a public offering via a reverse merger with a blank-check company was not aligned with his company's core mission and fundraising strategy at the moment.
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Just six months after raising $43 million in Series D funding, telemedicine startup 98point6 is back with $118 million in Series E financing, the startup said Thursday.

Investors L Catterton and Activant Capital led the latest influx of funding and came with an undisclosed valuation, cofounder and CEO Robbie Cape told Business Insider.

The startup, which provides virtual primary care through text messaging, wasn't actively seeking new funding, Cape said, so the new funds will be largely allocated to funding research and development of new tools and features, specifically in behavioral health.

The startup works directly with self-insured employers to provide its services as a benefit to employees, but patients can also use its direct-to-consumer model as well. Patients that use its direct-to-consumer service outside of an employer-sponsored plan pay a $30 per month membership fee and $1 per visit for the first three months, and $120 in annual membership with the $1 visit fee thereafter. 

98point6 has raised roughly $247 million in venture funding to date, according to a company spokesman.

Cape said a significant portion of 98point6's 300% increase in business was coming from health plans and self-insured employers that were "disappointed" by the services offered by traditional providers during the pandemic. He said that the traditional providers were under pressure to scale rapidly, with mixed results.

"That's been largely a good thing for 98point6," Cape said.

Investors are pouring money into telemedicine startups on the private and public markets

Investors were eager to fund 98point6 as soon as its last round closed in April, Cape said. Healthcare startups, especially digital health and telemedicine startups, have been highly sought after deals in both public and private markets as the pandemic-induced closures drag on and more patients opt into seeing their doctors virtually. Funding for digital health startups has reached or surpassed previous records, with roughly $9.4 billion invested through the first three quarters of 2020, according to a report from Rock Health.

Read more: One of healthcare's top VCs just invested $35 million in the booming on-demand mental health market. Here's what drew Oak HC/FT to the industry during the pandemic.

That interest, combined with a historically high stock market, has led to the proliferation of SPACs, or special purpose acquisition companies, that exist for the sole purpose of taking companies public through reverse mergers.

These "blank-check" companies allow startups to become public almost instantly without the hassle of a traditional IPO process. In the last month, direct-to-consumer healthcare company Hims and health insurer Clover Health have both approved SPAC public offering deals.

Cape said, a fast-track to public markets was never in consideration for 98point6 even with increased interest from several investors. 

"We will continue to make tradeoffs about the best financing strategies, and we will continue to make tradeoffs that ensure we can retain focus on the mission at hand as opposed to diluting it with other objectives and work items that come with managing a public company," Cape said. 

98point6 is trying to change the way people meet with their doctor

98point6's mission, Cape said, is to make primary care more affordable and accessible by offering text messaging-enabled appointments. Theoretically, a patient can meet with a doctor while walking their dog or sitting at a playground.

It's a model tailor-made for the current circumstances, Cape said. The coronavirus pandemic accelerated the changes 98point6 was already trying to implement in the broader healthcare ecosystem, such as more affordable and accessible care outside a traditional doctor's office.

But it's a shift that some companies won't be able to pull off in the long run, Cape said. The companies that struggled to scale at the beginning of the pandemic may continue to struggle, he said, and may not become the industry leaders down the road. 

"Ultimately, the same set of winners, that were winners before, will be the winners," Cape said. "The same set of folks who weren't delivering on patients' needs before will ultimately not be able to deliver during and after. All this energy has masked that, but at the end of the day they will go back to the situation they were in before."

He added, "Leaders will continue to lead, and those that can't will bounce back to where they were before."

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