Digital Health: The Next Frontier

The current global healthcare crisis set the stage for a shift towards tech-based healthcare. 

Healthcare has been slow to embrace technology, but now digital transformation in health care is accelerating. The increased demand on the healthcare system triggered many healthcare organizations to make changes to their delivery systems. Hospitals and clinics used telemedicine and remote patient monitoring services to provide meaningful solutions and supplement some healthcare delivery and services deficiencies. 

Will this innovation continue in a post-pandemic world? 

This is the question in many healthcare leaders’ minds. The availability of vaccines in most places in the US has led to the relaxation of some of the rules that were put in place. Now, most hospitals and clinics are opening up to the public and are seeing an increase in in-person visits. 

Investors, it seems, are bullish on this…

Rock Health’s recent publication states that H1 2021 secured $14.7B in digital health funding, already surpassing all of 2020’s funding. The half closed with 372 deals and an average deal size of $39.6M, spearheaded by 48 mega deals, accounting for 59% of total H1 2021 funding. Public exit activity ballooned with 11 closed IPOs and SPACs, with another 11 SPACs expected to close in 2021. 

Exploring opportunities in digital health.

Digital health is a broad term, and it is challenging to apply the umbrella approach when creating an investment thesis for this sector. Here at Creative, we are excited at the opportunities Digital Health provides to improve healthcare globally while also understanding the numerous challenges and multifaceted nature of the constraints. 

Digital health companies are usually subject to immense competition. Operating within a complex industry like healthcare is complicated. The simplicity and well-understood nature of digital health products also create room for significant competition. 

Even after all of these factors are met, there is still the issue of timing. With healthcare, you have to get the timing right. You don’t want to go too early when providers and patients don’t even recognize a need for your product. At the same time, you enter too late, and the market is already flooded with similar products. This dynamic is good for consumers, but for startups, it means succeeding in this space takes proper planning and in-depth exploration to ensure that they have a differentiated product and the right value proposition for competitive advantage.

Scaling digital health can be a challenge for startups. 

Compared to other sectors, such as consumer or enterprise software, determining product-market fit for early-stage digital health startups is difficult. 

The complexity of the U.S. healthcare system, data opacity, and regulatory uncertainty adds layers of ambiguity to digital health products’ commercialization. Because most products may not be paid for by the end-user, determining willingness to pay can be difficult. Even if consumers are willing and eager to adopt a product, healthcare providers may have to prescribe or recommend the product, and payers also have to reimburse the product. As a result, financial forecasts and economic planning are usually difficult to ascertain, especially in the early stages of the product life cycle. 

Because of these peculiarities, it is crucial for investors in the digital health space to understand the go-to-market strategy of potential investment opportunities before committing. Commercialization and success of a digital health startup increases when the product:

Solves a high-priority problem: Novel products that focus on addressing an unmet need that is a pain point in the patient workflow process are good candidates for investment. If a startup can demonstrate improved clinical outcomes, it is easier to secure reimbursement for the product.  

Focuses on the consumer: Identifying consumers’ preferences is key to creating an excellent digital health strategy. Digital health startups that understand the health goals of their consumers, how they make their healthcare decisions, and what they value in their healthcare experiences are more likely to get adopted. Comprehensive consumer insights and analysis will aid Founders in creating a product that extends beyond data. Convenience and precision are key focal areas. These strategies must encompass the end-to-end experience, including using digital tools to improve access and personalize healthcare. 

Prioritize privacy and data security: Although digital health consumers are more willing to share their health data, companies should prioritize the protection of consumer’s information. Healthcare information transparency is essential to encourage continued interconnectivity and improved services. 

By understanding the digital health consumer and effectively engaging them, startups can create products that satisfy the needs of the consumers leading to increased adoption and scalability.   

If you are actively working in this space, please reach out. I’d love to connect. 

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