The Longevity

Why Digital Health Startups Often Struggle to Meet VC Expectations

March 30, 2017 |

Digital health startups that in any way aim to fix–or disrupt–some of the many inefficiencies in healthcare face a tougher road than those startups strictly targeting consumers. But investors may not understand that.

The regulatory complexities within healthcare, coupled with the industry’s notoriously slow adoption of technology, have led many promising digital health startups to fizzle out after failing to realize the growth often seen among their consumer counterparts.

Sherpaa, an app that allows patients to securely text with physicians, is a notable exception, but their road to ultimately being self-funded was not without its bumps.

One digital health company, Sherpaa, beat the odds, but not without a tumultuous foray into the healthcare industry, according to Fast Company, which profiled the digital health app…

Initially, Sherpaa brought on investors who dealt exclusively with consumer technology, assuming that an outside influence would improve the app’s integration into healthcare, according to the company’s founder Jay Parkinson. Instead, Parkinson faced pressure from investors who were accustomed to the growth rates associated with consumer apps, and didn’t recognize the intricacies of the healthcare industry, which is more reserved and slower to integrate new technology.

The problem boils down to unattainably high expectations

Often, health apps enter the healthcare marketplace backed by a lot of funding, but fail to meet elevated expectations.

“Physicians don’t like to spend money on software; hospitals aren’t known for making rational and rapid decisions; payers are tough; and employers aren’t the easiest to sell into, either,” said Ben Rooks, a health IT consultant.

Not surprisingly, venture funding of digital health tech has plateaued, even as consumer adoption rates ramp up, perhaps in large part because doctors still have concerns over the use of the tools and aren’t yet participating much in their development.

More consumers are using digital health tools as venture funding has remained steady, reaching $12 billion in the first half of 2016 alone.

Last year, the CEO of the American Medical Association, James Madara, said healthcare must separate “digital snake oil” from those tools that are impactful. Months later, the AMA adopted new principles for mHealth usage and Madara urged doctors to get more involved in developing mHealth apps.