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Walnut wants to crack open flexibility for healthcare bills

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Healthcare insurance, if you’re lucky to have it, only covers a subset of conditions in the United States. As a result, patients can often get burdened with horror story charges, like huge deductibles, out-of-network costs and expensive co-pays. So for the uninsured and insured alike, innovative ways of managing big bills are in high demand — especially as uncertainty remains around how COVID-19 and long-haul symptoms will be handled by patients and payers.

Walnut, founded by Roshan Patel, is a point-of-sale lending company with a healthcare twist. Walnut uses a “buy now, pay later” model, popularized by Affirm and Klarna, to help patients pay for healthcare over a period of time, instead of in one $3,000 chunk. Walnut works with healthcare providers so that a patient’s bill can be paid back through $100-a-month increments for 30 months, instead of one aggressive credit card swipe.

A patient using Walnut to pay healthcare bills. Image Credits: Walnut

It’s a sweet deal, but Patel added one more detail that he thinks makes Walnut stand out: The startup doesn’t charge any interest or fees to consumers.

“Almost every ‘buy now, pay later’ company in e-commerce charges interest or fees, and every personal loan provider charges interest or fees, but we do not,” he said. “And that’s really important to me, not making healthcare any more expensive than it already is. It’s a very patient-friendly product.”

Companies that use the buy now, pay later model with zero interest or fees need to make revenue somehow, and in Walnut’s case it is by charging healthcare providers a percentage of each sale or transaction.

If a provider’s collection rate for an out-of-pocket is 50%, Walnut would go to them and say “give us a 40% discount, and we’ll guarantee the cash for you upfront.” The startup will take the risk, and then the provider is able to make 60% of the collection rate.

Now, ideally, a provider would want to get 100% of payments they are owed, but that is wishful thinking. Patel explained that a large number of bills go unpaid due to bankruptcies or a default on payments (the average collections rate for hospitals out of pocket is less than 20%). Because of this, a company like Walnut has room to offer at least some stable upfront cash to hospitals, even if it ends up being 60% of overall bills versus 100%.

The company uses “extensive underwriting models” to figure out if a patient should qualify for a loan. Patel says that the startup goes beyond using credit score, which he describes as an “outdated metric”, and instead looks at thousands of data points from different providers, from side hustle income to spending habits on things like groceries and bills.

Walnut’s biggest challenge, says Patel, is to underwrite the population and pay the healthcare provider upfront in cash. It then collects from the patient on the back end, which comes with its own amount of risk.

“To be able to take on that risk for patients that are less credit-worthy is a very challenging problem, and I don’t think it’s really solved yet in healthcare,” he said.

The startup is starting by working with small private practices of one to five physicians that focus on specialties like dentistry, dermatology and fertility.

A big part of Walnut’s success will be determined by if it can attract people that truly need flexible financing options. For example, the company doesn’t have any hospitals as a partner yet, which would tap a larger group of patients that likely need flexible financing options the most. Right now, “the people who get elective-care surgery are the ones that can afford it.”

But Patel doesn’t see this as a disconnect; instead, he sees it as an opportunity to widen access to elective medical care to more people.

“I talked to a person last week who has no teeth and wants dentures but it costs $6,000,” he said. “That person should be able to afford it, and we enabled them to pay $100 a month for it.”

Walnut’s two biggest customer groups are the uninsured (people who have lost their jobs from COVID-19), and consumers who have high deductible plans.

Walnut isn’t the first. PrimaHealth Credit, Walnut’s closest competitor, offers point-of-sale lending procedures for elective medical procedures. Think surgeries like cataract work or dental work. The company said the service is currently available in Arizona, California, Florida, Oklahoma and Texas, and will be expanded to all 50 states this year. Walnut, comparatively, is mostly focused on the East Coast and plans to expand nationwide by the end of this year.

PrimaHealth’s average loan size is $1,800, and Walnut’s average loan size is $5,000.

The company is currently piloting with a handful of healthcare providers in dermatology, dentistry and fertility. It has had more than 500 patient loan applications, totaling over $4.6 million in application volume year-to-date. Patel says that Walnut only accepted a fraction of these applications, but declined to share what percent of money it has lent so far. As Walnut refines its model, it might be able to cover other categories.

Up until this point, Walnut has been lending off of its own balance sheet. In order to truly scale, it will need to get a new source of capital — either a credit line, debt financing round or venture capital — to offer more loans. Patel says that the startup is in talks with banks, and turned down a debt offer due to size and rate.

Venture capital seems to be the solution for now: The startup announced that it has raised a $3.6 million seed round from investors including Gradient Ventures, Afore Capital, 2048 Ventures, Supernode Ventures, TA Ventures, Polymath Capital, Tack Ventures, Awesome People Ventures, Newark Ventures and NKM Capital. Angels include the CEOs of Giphy and PillPack, and the CTO of Rampm Financial as well as an NFL coach. The company is also a part of Plaid’s inaugural accelerator.

“I don’t want to be yet another startup trying to offer you an undifferentiated insurance plan,” Patel said.

Lyron Foster is a Hawaii based African American Musician, Author, Actor, Blogger, Filmmaker, Philanthropist and Multinational Serial Tech Entrepreneur.

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Haitian Activist Brings Awareness To Spate Of Violence Rattling Country

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NPR’s Michel Martin speaks with Jimmy Jean-Louis, a Haitian activist and actor who has been calling attention to the recent surge of violence and kidnappings in his country.

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Consumer agency warns against Peloton Tread+ use, as company pushes back

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Almost exactly a month ago, Peloton CEO John Foley wrote an open letter about the the company’s treadmill. “I’m reaching out to you today because I recently learned about a tragic accident involving a child and the Tread+, resulting in, unthinkably, a death,” it begins. “While we are aware of only a small handful of incidents involving the Tread+ where children have been hurt, each one is devastating to all of us at Peloton, and our hearts go out to the families involved.”

Today, the U.S. Consumer Product Safety Commission issued a warning, telling users to stop using the Tread+. Citing 39 incidents, included the aforementioned death, the CPSC writes, “The Commission has found that the public health and safety requires this notice to warn the public quickly of the hazard.”

Peloton followed up with its own strongly worded statement writing, “The company is troubled by the Consumer Product Safety Commission’s (CPSC) unilateral press release about the Peloton Tread+ because it is inaccurate and misleading. There is no reason to stop using the Tread+, as long as all warnings and safety instructions are followed.”

The commission’s warning includes multiple injuries involving small children and a pet. Specifically, the note calls for users with children at how to cease using the product, a more stern warning than the initial suggestions outlined by Foley back in in March, who at the time told users to keep children and pets away from the system and store the device out of reach after using. Peloton has since added that there have been 23 incidents involving children, 15 with objects and, as the CPSC noted, one with a pet. The company added that it had not revealed the specifics previously out of privacy concern.

“If consumers must continue to use the product, CPSC urges consumers to use the product only in a locked room, to prevent access to children and pets while the treadmill is in use,” the organization notes. “Keep all objects, including exercise balls and other equipment, away from the treadmill.”

For its part, the connected fitness maker adds,

Peloton invited CPSC to make a joint announcement about the danger of not following the warnings and safety instructions provided with the Tread+, and Foley asked to meet directly with CPSC. CPSC has unfairly characterized Peloton’s efforts to collaborate and to correct inaccuracies in CPSC’s press release as an attempt to delay. This could not be farther from the truth. The company already urged Members to follow all warnings and safety instructions. Peloton is disappointed that, despite its offers of collaboration, and despite the fact that the Tread+ complies with all applicable safety standards, CPSC was unwilling to engage in any meaningful discussions with Peloton before issuing its inaccurate and misleading press release.

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Why it’s not surprising to see nine-figure AI rounds 

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Welcome back to The TechCrunch Exchange, a weekly startups-and-markets newsletter. It’s broadly based on the daily column that appears on Extra Crunch, but free, and made for your weekend reading. If you want it in your inbox every Saturday morning, sign up here

Ready? Let’s talk money, startups and spicy IPO rumors.

This week, Scale AI raised a $325 million Series E. The company, as TechCrunch has written, works in the data labeling space. And it has been on a fundraising tear over the last few years. In 2019 TechCrunch wrote about how the company’s then-22-year-old CEO had put together a $100 million round. Then in December of 2020, it raised $155 million at a roughly $3.5 billion valuation. Now it’s worth more than $7 billion.

Impressive, yeah? Well, as I learned earlier this week, AI startups in general are having one hell of a year. From the start of 2021 to April 12th, there were 442 AI-startup deals in the U.S. worth $11.65 billion, according to PitchBook data. And the recent Microsoft-Nuance AI deal may accelerate things even more.

Sapphire Ventures’ Jai Das weighed in on the AI venture market for The Exchange. He answered our question regarding how competitive the space was in the first quarter by saying that “investment activity in AI/ML startups has been absolutely insane” during the first quarter.

Per Das: “AI/ML startups are routinely getting 5-6 term sheets from top-tier VC firms and they are able to raise their financings at 150-250X of current ARR.”

Chew on that for a moment. We’ve seen public software multiples reach new heights in the last year, but even for aggressive startup rounds, those are some bonkers numbers. Imagine an AI-focused startup with $1 million in recurring revenue being valued at a quarter of a billion dollars. Damn.

But what about pace among AI investing? We’ve heard that the time from a round opening to its closing among many startups has been compressed and compressed again. Das helped explain the situation, saying in an email that “most firms are completing their due diligence way before the financing actually happens,” which means that there is “no need to do any due diligence during the financing.”

That actually makes some sense? If rounds are largely preemptive — something that Das underscored later on in his comments — you have to do pre-diligence. Otherwise you’ll always be investing blind or missing out on deals due to other firms moving more quickly.

This week The Exchange also dug into the broader domestic venture capital market, with a special focus on seed deals, and the super late-stage investments that dominate headlines. A comment on the earlier-stages of venture investing that just missed our piece on the matter came from Jeff Grabow, EY’s U.S. Venture Capital lead.

In his comments on pre-seed, seed and post-seed deals, something stood out to us — a prediction of sorts. Here’s Grabow:

[Q1 2021] was a strong quarter for pre-seed funding when you compare it to prior years, and we expect the overall environment to remain strong given the abundance of capital available and plethora of investable themes that tap into new markets via technological solutions. It paints a rosy picture for the post-COVID environment.

That tracks with our internal estimates. Q1 2021 was so hot for at least American venture capital activity (expect more international coverage soon) that it seems likely that the year itself will be a record in many respects. Provided that things don’t slow too much, records will be broken. And here Grabow flat-out anticipates a pretty attractive climate for venture after COVID-19 is behind us.

So, records will be broken. The question is by how much.

More notes on Coinbase’s direct listing

Not to whomp the equestrian deceased too much, but I have a few more notes for you on the Coinbase direct listing.

Public.com, the Robinhood consumer trading rival, helped The Exchange better understand just how much retail interest there was in the stock. Per its ever-present spokesperson Mo, on April 14th, Coinbase “was the most popular stock on public,” measured by number of transactions. And perhaps more notably, on the same day “social activity (measured by the number of posts) increased by 70% compared to the day prior.”

I do not know how long the consumer trading boom can last, but that’s a pretty impressive set of metrics.

Similarweb also had a few data points to share, including that visits to coinbase.com reached 86.4 million in January. Hot damn. And during that month new visitors bested returning visitors. That data helps explain how Coinbase wound up with the epic first quarter that it did. Now the question is if it can keep up its bull run or, frankly, if consumer interest in trading in crypto specifically will outlast the equities trading boom or not.

Coinbase Series D lead investor Tom Loverro, who we’ve mentioned a few times this week, including on the podcast, said that we’re still merely in the second inning of crypto. So expect these topics to keep coming up again and again. And again.

Various and sundry

Trying to actually stick to our word count target for once, here are some final notes on the IPO market from the week.

First, the AppLovin IPO did not go according to plan. After modestly pricing at $80 per share, the middle of its range, the mobile-app focused tech company saw its value fall during its first two days’ trading. It’s now worth $61 per share as of the end of Friday.

The Exchange spoke with AppLovin CFO Herald Chen on its IPO day. Chatting with the finance executive, our read from the conversation is that the company could accelerate its acquisition game more now that it is public. Having a liquid stock means that it can be even more acquisitive than before. And AppLovin claims that it can buy companies, run them through its business process, and juice their revenues per its S-1 filing.

If that bears out, the public markets may be giving the company a bit too hard of a time. It was a bit odd to see a software company struggle post-IPO in today’s climate.

Chen also told The Exchange that his firm didn’t see any pushback regarding its multi-class share structure during its roadshow. The multi-class share miasm is something I’ve written about with our own Ron Miller. The CFO did note that no single person has complete control of the company, even with several different classes of equity with disparate voting rights. That matters, frankly.

We’ll keep tabs on AppLovin as it trades. (Our earlier coverage of its numbers is here.)

Finally, autonomous trucking company TuSimple went public this week, and Similarweb filed to go public. We’re also watching the broader IPO market as UiPath either raises its price range or note. We have a guess on that score.

And just as the week was closing, Squarespace dropped its S-1. Notes here with more to come.

Good vibes and nothing other than the best from here,

Alex

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