Pre-IPO pedia | How Devoted Health hits over $10B valuation within five years

Nowadays, the aging population has become an important social issue that cannot be ignored all over the world.

According to the U.S. Census Bureau, more than 10,000 Americans reach the age of 65 per day and begin to benefit from the U.S. Medicare programme.

An increasing number of companies have also recognized the huge opportunity to provide healthcare services to seniors. According to insiders, "Some start-ups are pinpointing a large mount of unmet need in healthcare service industry and they are in an attempt to fill the gap."

Devoted Health, a US-based health insurance services company, has launched several health insurance and differentiated healthcare services for the elderly population since its inception in 2017.

It has not only received an warm response from the public, but also from institutions such as SoftBank and NextView Ventures, with total funding now standing at $2 billion.

How does Devoted Health develop so quickly to become a major player in the senior health insurance market within five years? IPO Buzz will take you to its story.

The founders of Devoted Health are the two Korean-American brothers Ed Park and Todd Park, who both graduated from Harvard University.

In 1997, they set up Athena health, a pioneering health technology company that provided cloud-based software and services to healthcare practitioners.

From 2010 to 2014, Todd Park served as Chief Technology Officer of the U.S. Department of Health and Human Services and was listed as one of "100 The Most Creative People in Business" by the magazine of Fast Company.

During his tenure in government, Todd Park gained a deep understanding of the lack of resources for senior healthcare. At the same time, his team identified the huge potential of the Medicare Advantage market for seniors.

Medicare is a national social insurance programme established by the U.S. government in 1965 for seniors over the age of 65 and people with certain illnesses and disabilities.

Medicare Advantage is a branch of Medicare that allows people covered by it to obtain coverage through private insurance.

In traditional medical health insurance programs, the seniors are usually regarded to have a higher incidence of chronic diseases and higher medical costs.

Therefore, they are not the ideal group for insurance companies to cover.

In recent years, advances in medical technology have created greater possibility for preventive medicine and treatment of chronic conditions for seniors, and more and more companies have realized the huge potential of the Medicare Advantge market.

The programme is also widely considered as the most valuable part of the U.S. healthcare system, with some well-known healthcare companies such as Clover Health and Bright Health already involved.

The Park brothers who have rich experience in this industry would not miss the precious opportuinity.

In 2017, Ed and Todd launched Devoted Health with the slogan "Treating every member like parents", with the aim of providing better health management solutions for the seniors.

Devoted Health offers a wide range of services, from complex items such as inpatient care and radiology diagnose to routine dental, audiology and optometry services, with multiple providers available in each area.

Devoted Health cooperates with doctors, medical groups, medical equipment suppliers and other healthcare providers, and registered members can choose a provider near them based on their location.

Currently, Devoted Health's core competencies exist in the following areas.

Firstly, Devoted Health provides personalised medical services to its members, including home phone follow-ups and emergency telemedicine.

Secondly, Devoted Health offers a range of care services for seniors who have difficulty getting around, such as booking appointments with doctors, contacting transport to clinics and looking after children at home.

Thirdly, Devoted Health has an accurate referral system that benefits the users, the service providers and itself at the same time.

As for the users, they can send their medical information to a primary care physician (PCP) . After their information being assessed, they will be assigned to a specialist so that they can receive targeted treatment.

In terms of the service providers, since they has access to a large pool of subscribers referred by Devoted Health, they do not have to pay large sums of money to acquire subscribers.

For the company itself, this model not only helps to attract more quality providers, but also gives it greater bargaining power to attract more users with lower prices and better services.

The financial information that the company posted showed that 2020 was a significant year of revenue and membership growth.

The company's revenue grew nearly fivefold from $45.2 million in 2019 to $227 million in 2020.

This was mostly driven by its expansion into a new state and the addition of thousands of new members.

Devoted Health only has 4,420 members in 2019 and only operates in Florida then. By the end of 2020, the number of its Medicare Advantage members grows to 20,315 in Florida and Texas.

Nonetheless, Devoted Health's net loss widens from $27.4 million in 2019 to $73.3 million in 2020, which attributes to a significant increase in medical claims expense and overhead expenses.

Since its inception in 2017, Devoted Health has gone through four rounds of funding with major investors including SoftBank, General Catalyst Ventures, Jaws Ventures and Andreessen Horowitz.

In October 2017, Devoted Health received $62 million in Series A financing from five investors, at a valuation of $295 million.

In October 2018, Devoted Health received $300 million in Series B funding led by Andreessen Horowitz. The round brought its valuation to $1.8 billion, which shows a five-fold increase compared to last year.

In July 2020, Devoted Health received $450 million in Series C funding, doubling its valuation to $3.78 billion in less than a year.

In October 2021, Devoted Health received $1.23 billion in funding led by SoftBank and Uprising, a round that was the largest ever raised by private companies in Massachusetts, sending its valuation soaring to $12.6 billion.

Devoted Health's high valuation has also sparked debate among industry stakeholders.

Some people attribute its high valuation to the rapid expansion of its business, the significant growth of its membership and the market's bullishness on its management team's extensive experience in the industry.

But some people also believe that Devoted Health's high valuation can only be justified if it capture significant market share from the largest medical care companies, such as Health Group and Humana.

At present, there is no firm news or rumors on the market yet about whether Devoted Health plans to go public.

"Many of the insurtech companies that have gone public in recent years are now trading below their IPO prices. The real test of Devoted Health's valuation will come when the company decides to go public", said Kaenan Hertz, managing partner at Insurtech Advisors.

These days., insurtech companies in the health insurance industry are becoming more and more popular.

With several well-known health insurance companies such as Bright Health and Clover Health having recently gone public, maybe it will not be long for Devoted Health either.

What do you think about Devoted Health's IPO prospects? Feel free to discuss below.