As evidence, Coppedge cited the work of Rock Health that shows $16 Billion in VC funding has gone to approximately 800 digital health companies since 2014 (note: Rock Health tracks VC deals >$2M for US-based digital health companies). He argued that in order for these VCs to see their expected returns, the entire digital health market would have to triple in value by 2021 – well beyond current projections. Coppedge’s conclusion was that fewer and fewer VC deals in the digital health space will happen in the years ahead – effectively signaling the death of the market.
Although I don’t agree with Coppedge’s claim that that digital health overall is dead, I do concur with his observations and commentary on why VCs may exit the space. Here are some of his lessons learned after investing in digital health:
- Better mousetraps are not enough. Inadequate attention was paid to solving how to go to market.
- Ill-equipped for enterprise health care. Subject matter expertise, outcomes measurement and political savvy is needed in healthcare – which is rarely necessary in star-ups targeting other industries.
- Consumers and patients are not the same. Unlike consumers, patients may not be the ones paying for the service they receive. Plus, engaging individuals in their health is surprisingly difficult and low engagement is common.
- Healthcare sales cycles are slow and industry adoption is measured. Growth expectations need to be tempered.
- DC is not to blame for stalling digital health. There is no evidence that supports the theory that healthcare innovation has stalled because of the uncertainty surrounding funding and regulations.
For long-time readers of this publication, the list above states the obvious.
Technology alone has never been enough to guarantee success in healthcare. Not only do healthcare customers need evidence a company’s solution actually works, they also need to help through (and beyond) the implementation of the technology. For companies, this often means creating new workflows that incorporate the new technology and helping their client’s staff adjust to those changes. Digital health companies cannot simply activate an account then foist self-serve instructional videos onto clients and expect success.
For me Coppedge’s post reaffirmed something I have long believed – Success in healthcare IT/digital health takes effort. Not only do you need a good product that actually solves a problem, you need a dedicated team of individuals who are healthcare-savvy that can help you navigate the complex health ecosystem. You need people on your team who are truly passionate about and dedicated to improving healthcare – those are the people with staying power and who will help you ride through the frustrating slow pace of change.
In my opinion, digital health is far from dead. It is evolving and changing. The influx of VC money has brought in smart, enthusiastic risk-takers from other industries who have now gotten a sobering dose of cold water dumped on them. Now that many companies are waking up to the reality that it takes years to become an overnight success in healthcare, we will see more consolidation and flame-outs in digital health. To me this potential turmoil represents an evolution of the market rather than a death spiral. The easy money and opportunists will soon be making an exit – leaving the market wide open for true believers and passionate hard workers.