Israeli high-tech entrepreneurship has continuously impressed over the past decade. Year on year venture capital investment records are broken, with exit value growing eightfold from 2010 to 2019.
One company that stands out from this new era of Israeli high-tech is Talksapce, the mobile therapy company that is now based in New York. Founded in 2012 by Oren and Roni Frank, with the former being an Israeli businessman and the latter having a master’s in psychotherapy, Talkspace came during the new wave of Telehealth companies.
Founded one year before their core rival Betterhelp, Talkspace spearheaded the movement for digitizing therapy. With early research showing that CBT therapy is just as effective when delivered remotely as in-person, it was clear that a mobile therapy site could have serious competitive advantages. Lower costs because of lower overheads along with greater immediacy and accessibility. Essentially, a tech company’s approach to mental health, which inevitably brings along with it some controversies.
Talkspace IPO
In early 2021, Talkspace agreed to go public through merger company Hudson Executive Investment Corp. 9 years of growth which was accelerated by the pandemic, the deal also included $300 million of private investment funding from Woodline Partners, Jennison Associates, among others.
The deal valued Talkspace at $1.4 billion, including the debt. One more public exit on the chalkboard for Israeli entrepreneurs, the company finally went public in June 2021 on the Nasdaq; the opening price per stock was $8.90 with 152 million shares outstanding.
Since then, the company’s value has been sliding considerably, eventually hitting a market value of less than $100m. One thing that did bump the share price up a little was the interest from a potential acquisition.
Fast-forward 18 months after the IPO and Amwell, a highly credible Israeli-American telehealth firm, was in talks to acquire Talkspace. However, at $1.50 per share, which admittedly prices the firm at double its recent $100 valuation, was not enough. When taking into consideration that Talkspace’s cash and cash equivalents are almost $200 along with its $1.4 billion valuation in 2020, it may be a mystery how this deal came so close. But, one reason is because of the recent Talkspace scandal which almost saw them delisted from trading on Nasdaq.
Talkspace Scandal
Towards the end of 2022, a very damning letter was leaked. Talkspace received a letter from the Nasdaq’s Listing Qualifications Department notifying the firm that, during the previous 30 business days, the price of the company’s stock was below the $1.00 minimum that is required to be listed on the Nasdaq. An embarrassing letter to receive in the midst of negotiating an acquisition.
The Talkspace investigation was given 180 days to regain compliance with the minimum bid price rule. Despite these compliance issues, Talkspace’s board of directors rejected proposals. It’s not the first time Talkspace news has been negative, and likely won’t be the last.
Israel’s influence within Telehealth
It is not just Talkspace and Amwell, two of the largest telehealth companies in the world, that are created by Israeli entrepreneurs. Betterhelp, who is often seen as the core competitor to Talksapce, in that they operate almost identical services and pricing through a super accessible technological infrastructure, was also founded by an Israeli.
The common denominator here is not actually telehealth, but technological startups. The highly educated population of Israel receives a lot of government support when it comes to tech startups, including tax incentives and funding for research and development.
Furthermore, there is a growing culture of entrepreneurialism. The risk-taking attitude towards innovation along with relatively easy access to venture capital is the perfect environment. Not to mention its proximity to both Europe and the Middle East, all whilst maintaining great relations with the US.
Some other Israeli telehealth companies that are making great progress include TytoCare, a platform that allows patients to conduct remote medical exams from a smartphone, medFlyt, SHL TeleMedicine, K-Health, Sivan Innovation, and many more.
Final Word – The Dangers of a SPAC
Special Purpose Acquisition Companies (SPAC) are shell companies that try to raise funds only to merge private companies into it – usually within two years. If they fail to merge at this time, they must give back the company returns to investors… Plus interest.
Talkspace highlights how these can fail. Hudson Executive Investment Corp was the SPAC in Talkspace’s IPO, and this helps describe precisely the decline of Talkspace. The main mistake, which is often driven by greed, was to go public too soon. Whilst its technological infrastructure and value proposition was great, the cost of the customer acquisitions was really high and the need for perpetually high advertising investment meant that its profitability was a question mark. The $1.4 billion valuation from the SPAC offer was too tempting for a firm with only $74 million revenue.
Bestonlinetherapy still considers Talkspace a leading therapy service when it comes to its services. The lessons of Talkspace’s sharp rise and decline can be a lesson to other Israeli entrepreneurs, particularly within the telehealth space. Merging with a credible player in the market could create synergistic results as opposed to the cash grab of a premature SPAC IPO.