- Healthcare SaaS provider ZocDoc joined the Unicorn's club after raising $130M at a $1.8B valuation.
- The company is focused on shifting the healthcare industry towards revolving around patients instead of around insurance companies and healthcare providers.
- The patient/doctor interaction market and ZocDoc focus areas suggest potential future growth.
Medical cloud services provider ZocDoc completed a $130M funding round last week in one of that week's biggest private market funding rounds. The valuation of the New York-based company increased up to $1.8B, placing it as the city’s third most valuated VC-backed startup, right behind the office leasing startup WeWork that is valuated at $10B and food delivery startup Blue Apron that is valuated at $2B.
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ZocDoc is an online platform that connects medical doctors with patients. The platform allows patients to find doctors according to specialty, location or participating insurance providers and review their profiles, read reviews, and book an appointment either through the ZocDoc website or the iOS/Android apps. Doctors who subscribe to ZocDoc can integrate the schedule into their office calendar software or their website and keep all of their appointments up to date. The service covers more than 2,000 cities across the U.S. and includes more than 50 medical specialties in English and Spanish.
Revenue and Business Model
ZocDoc was founded in 2007 as a doctor’s directory for the Manhattan area in New York by Wharton Business School graduate Cyrus Massoumi. As mentioned above, ZocDoc evolved and now has a nationwide coverage of doctors with different specialties that are willing to pay high annual prices that expectedly will be offset by the amount of revenue these doctors collect from the patients that arrived through ZocDoc. The company disrupts the traditional process of booking a doctor’s appointment by making doctor’s information, reviews, and background details available to patients immediately and simplifying the comparison process between different doctors and practices.
ZocDoc is totally free for patients. However, medical doctors who want to use the service are required to pay an annual fee of $3,000. With more than 49,000 doctors in its directory, ZocDoc generated $98.5M by this time of the year and will generate $147M in 2015 if the number of doctors remains flat by the end of December.
In a Bloomberg TV interview just after completing the funding round, CEO Cyrus Massoumi stated that ZozDoc plans to use series D proceeds to expand the interaction tools between doctors and patients, tools to understand and better utilize insurance benefits and interact with your doctor for a prescription refill. ZocDoc’s vision is to put the patient/consumer in the center of the healthcare service similar to the processes which happened in the transportation market with Uber, Gett, etc. and in the traveling market with Airbnb, Expedia (NASDAQ:EXPE), Tripadvisor (NASDAQ:TRIP), etc. Focusing on putting the consumer at the center of their business and developing additional tools that a customer needs so he or she could receive a comprehensive solution is ZocDoc’s growth potential. Other players in the Healthcare IT market for patients/doctors interaction include startups like Indian company Practo, French company KelDoc and other local services. The fact that there is no single company which thrives for global coverage is in my eyes an incredible growth opportunity for the largest player in the market, ZocDoc.
Funding and Valuation
ZocDoc raised almost $230M in four equity funding rounds and debt financing between August 2008 and August 2015. Notable investors in ZocDoc include VC fund Khosla Ventures, SV Angel, Amazon’s Jeff Bezos, Peter Thiel’s Founders Fund and European investment funds Atomico and Baillie Gifford. In the latest series D, the company raised $130M at a $1.8B valuation which reflects a reasonable P/S ratio of 12. ZocDoc’s P/S ratio is a reasonable multiple for a 7-year-old startup with decent revenues and substantial growth plans.
Path to ZocDoc IPO
ZocDoc is an attractive company with a P/S ratio of 12, proven revenue streams, and solid plans for the future targeted at expanding its current portfolio and growing revenue further. Even though the company’s IPO plans are not clear at this point, the eight-year-old company is getting close to the point where early investors start looking for an exit. This exit might come from an acquisition by one of the health insurance companies like Aetna (NYSE:AET), Cigna (NYSE:CI), and Metlife (NYSE:MET) or by healthcare experts like UnitedHealth Group (NYSE:UNH). Another exit alternative that might be preferred by some of the shareholders is a ZocDoc IPO.
As ZocDoc has an un-cyclical business and has hardly been impacted by economic turmoil, the company should fully utilize the private equity market funding stream and then file for an IPO towards the end of next year. I will revisit my analysis once a major development occurs and publish an update about ZocDoc IPO.
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