Despite the Covid-19 pandemic shutting down much of the world and forcing most people to quarantine in their homes for months on end, many startups actually thrived in 2020 as they raced to fulfill unmet needs the public health crisis had created.
One such startup was Carbon Health, which was founded in 2015 and began offering Covid testing in late 2020 and Covid vaccinations in early 2021. By 2021, Carbon Health’s revenue had nearly quintupled to $228 million, thanks largely to its Covid services, business media company The Information reported. By 2021, the startup was valued at $3.3 billion—touting goals to become the largest primary care provider in the US and open 1,500 clinics by 2025.
Besides Covid, venture capital (VC) dollars also boosted Carbon Health’s success: the company raised $674 million from top VC firms, including Blackstone—one of the largest private equity firms in the world—over the course of six years, according to The Information.
But the boom didn’t last long.
Carbon Health lost more than $84 million in the first half of 2023, in addition to $129 million in the first half of 2022, according to financial documents reviewed by The Information. The startup’s Covid-related revenue fell to zero, and its valuation dropped to $1.4 billion by January 2023. Plus, the company lost $64 per patient visit that same month, and $105 per patient visit the year before, according to The Information.
Eren Bali, Carbon Health’s co-founder and CEO, told The Information that the company “went from fairy-tale startup world to the real world.”
In response to its revenue downfall, Carbon Health laid off more than 500 employees, closed nearly a dozen clinics, ceased operations in multiple states, and sold two of its acquired companies, The Information reported.
What led to the downfall
Aaron DeGagne, a medtech and digital health analyst at market data company PitchBook, told Healthcare Brew he believes two main factors contributed to Carbon Health’s financial downturn.
First, Covid-related revenues “totally fell off the cliff.”
“This has been a problem for a lot of companies across the board,” DeGagne said. “They knew it would come down, but the extent of the drop surprised a lot of people.”
Second, investors no longer have an appetite for unprofitable companies. In 2021, venture capitalists were flush with cash and willing to invest in startups that may have had a longer path to profitability, but the market has since shifted, DeGagne said.
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“[Investors] don’t want to invest in the big loss types of startups that they did two years ago,” he said. “From that perspective, regardless of Covid, [Carbon Health] just had to pivot and prioritize profit over scale, which is what a lot of startups are doing.”
Despite investors’ lack of interest in unprofitable companies and Carbon Health’s financial struggles, the startup raised $100 million in a Series D round led by CVS Health Ventures in January 2023. But DeGagne said he wouldn’t “put a ton of stock” in the investment, since CVS isn’t a typical investor and has a unique interest in Carbon Health’s primary care clinics, as the pharmacy chain is trying to transform into a value-based healthcare company.
Carbon Health’s potential future
DeGagne said he doesn’t think bankruptcy is in the cards for Carbon Health in the near future, but it’s going to take years for the startup to be net profitable. Another company acquiring Carbon Health is also probably not in the cards, he added.
“It just seems unlikely that anyone would come in and pay a billion dollars for this business at this point,” DeGagne said.
But in the longer term, CVS or Walgreens may try to scoop up Carbon Health as both companies continue to expand their primary care footprints, he added.
In the next couple of years—assuming Carbon Health can overcome its financial troubles—DeGagne said he expects the company to scale down and focus on optimizing its technology.
“They’re not going to be able to open up hundreds of clinics,” DeGagne said. “I would say they’re probably not going to meet their own expectations of what they want [the company] to be.”
Ultimately, Carbon Health’s primary care business model isn’t going anywhere anytime soon, DeGagne projected, saying that “there’s still interest in these types of models.”
“A lot of healthcare investors are looking for the next complete game changer in care delivery,” DeGagne said. “If you’re able to build something from scratch and do it well, I think people see a lot of potential [that] patients would gravitate to that sort of model.”