From its inception, digital health has been focused on developing technologies and solutions that offer a higher quality of healthcare to more people at a lower cost. Amidst fluctuations in stock prices, valuations and investor sentiment, that focus hasn't changed, and the good work we are doing in the sector continues unabated.
The mission to use innovative technologies to improve the human health condition—especially for people who have been traditionally underserved—is clearer than ever. Yes, digital health is nursing the same hangover as every other business segment after the "party" atmosphere created by zero interest rates, abundant capital and a Gold Rush mentality in some sectors. But recovery is now underway.
This is the takeaway from another productive and exciting summit hosted last week by our good friends at Rock Health. The annual gathering brought together industry entrepreneurs, thought leaders, innovators and investors who serve as digital health's economic engine. It was a day of insights about the wild ride the sector has been on the past few years, beginning with the boom in demand and opportunity created by the COVID-19 pandemic.
In the last panel discussion of the day, I was joined on stage by Meera Mani, physician and partner at Town Hall Ventures; Kiyana Turner, director of digital transformation at Children's Hospital Los Angeles; and Carolyn Witte, cofounder and CEO of women's primary care provider Tia. We each described to our moderator, healthcare reporter Erin Brodwin of Axios, how the critical mission and work of our digital health community goes on even as the economy tries to regain its footing.
The New Climate
During the pandemic, many digital health companies were able to prove that their products and services really can help people at scale, which was an exciting phenomenon. That's why investors clamored to be a part of it. But in the current challenged macro environment, investors are now taking a good, long look before they leap.
Mani, whose firm is backing 33 startups that directly care for 44 million people, noted that investors remain ready to fund digital health companies. However, they are particularly drawn to startups with robust value propositions and solid fundamentals.
Turner, given her role at a major hospital system, is a good gauge of corporate investors' sentiment. She indicated her organization has become more conservative with new investments and needs to see more in terms of likely ROI than they might have required in the past.
Investors today want to see proof of improved health outcomes before financing a startup, Turner said, adding that peer-reviewed studies are her organization's preferred form of proof.
Digital health is not shrinking or retreating, these panelists said, and I agree with them. The sector is recalibrating after reaching new heights very quickly.
Advice to Founders
The sector's current rightsizing is healthy for the long run, even if it means a bit of short-term uncertainty for founders. I advise them to accept some of the sector's growing pains, and to keep pushing forward.
Financially, down rounds, recaps and structured terms in funding rounds are today's reality. Founders shouldn't overly focus on the top-line valuation number, especially if it means that they must accept onerous and structured financing terms in order to achieve it.
Instead, most would be well served to keep terms simple and focus on incentivizing their teams, while aiming for sustained growth and not growth at all costs. That might mean accepting a down round, in order to give their vision, technology and solutions the chance to continue fighting for the change our healthcare system desperately needs.
Sooner than later, conditions will improve, terms will become more favorable, and valuations will rise. For now, companies are rightsizing, and investors are doubling down on what is sustainable, to collectively stay focused on bringing lifesaving and life-improving technologies to patients—ultimately delivering better care at a lower cost.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
