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The Takeaway

OpenEvidence, the fast-growing startup that helps doctors find medical information through an AI chatbot, has considered raising $200 million after receiving offers from investors at a valuation of around $20 billion, according to a person involved in the discussions.

The company is unlikely to proceed, in part because a round would dilute founders and other shareholders, the person said. OpenEvidence has also held acquisition talks with a large tech company in recent months, they said.

OpenEvidence is currently generating close to $300 million in annualized revenue, which implies close to $25 million in revenue per month, the person said. That’s double what it was making around seven months ago, when it was in talks to raise at a $12 billion valuation.

OpenEvidence’s revenue growth could assuage investors’ fears that AI application startups’ businesses will soon get swallowed up by the big AI labs, which are releasing competing apps. OpenAI in April released ChatGPT for Clinicians, a version of its chatbot that helps healthcare professionals with documentation and medical research.

OpenEvidence makes money by selling advertising space on its chatbot app to pharmaceutical companies, similar to the way Google sells ads on its search engine. Boosting revenue growth, it recently changed to a business model in which advertisers bid for ad space rather than pay a fixed fee, the person with knowledge said. The change increased the prices of its advertisements.

OpenEvidence is currently selling less than 5% of its ad inventory, suggesting it could generate billions of dollars in annualized revenue if it sold the rest, the person said.

The Miami-based company’s gross profit margin is currently around 90%, putting it above many other AI startups in that regard. Gross margins measure how much companies earn from their sales after subtracting the direct costs of serving its revenue-generating products, known as cost of revenue. OpenEvidence’s costs of revenue include what it pays to run servers, including AI models that power the product, and money it spends to license content from medical journals.

It’s currently running at breakeven on a cash flow basis, as the company invests in training its own models for tasks like generating medical notes and searching information from medical journals, the person said.