Redefining Digital Health Startup Evaluation for Investors

A Year of Record Investment in Digital Health

Private investment in the digital health sector reached unprecedented levels this year. Significant capital was allocated by investors to digital health solutions, recognizing their potential to revolutionize a traditionally slow-moving and often ineffective industry.

The Challenge of Demonstrating Value

Despite the considerable interest from investors, consumers, healthcare providers, and other stakeholders, early-stage digital health entrepreneurs face a critical challenge. They must effectively demonstrate the value and return on investment (ROI) of their offerings.

Establishing a financially sound ROI necessitates both time and robust data collection, a principle that holds true for digital health as well. In the healthcare context, ROI is determined by quantifying improvements in patient outcomes or reductions in costs for the organization and its members.

Reframing the ROI Focus

Although claims-based ROI analysis is essential for long-term success evaluation, fostering widespread innovation demands a more flexible approach. Stakeholders should proactively explore alternative metrics to showcase value in the initial stages.

Instead of allowing the absence of immediate claims data to hinder progress, investors should prioritize the long-term vision of the company. Focus should be placed on the benefits experienced by the end-user and the overall impact on the healthcare system.

Key Questions for Early-Stage Investment

To refine measurement strategies and guide investment in early-stage startups, consider these three fundamental questions:

• What specific problem is the solution designed to address?
• What metrics can be tracked to identify early signals of positive results?
• Why, and in what ways, does the user experience surpass existing alternatives?

Successfully answering these questions will be instrumental in unlocking the full potential of digital health innovation and securing continued investment.

Addressing Critical Societal Challenges with Digital Health

Digital health innovations are currently tackling some of the most pressing issues confronting modern society. Consider the difficulties surrounding access to mental healthcare, for instance. The COVID-19 pandemic revealed a significant need, with approximately 40% of adults in the United States experiencing symptoms indicative of anxiety or depressive disorders.

Data from March to October 2020 demonstrates a concerning trend: emergency department visits related to mental health crises among children increased by 24% for those aged five to eleven.

Furthermore, adolescents and teenagers between the ages of twelve and seventeen experienced a 31% rise in mental health-related emergency room visits during the same period.

The heightened awareness of mental health has spurred a substantial surge in investment within the sector. As of September's close, mental health emerged as the leading therapeutic area for funding, attracting $3.1 billion in capital.

Organizations such as Brightline and Ginger are providing extensive mental health solutions, delivering vital and accessible care to individuals nationwide. The scale of the problems they are working to resolve is considerable, and the potential positive impact on consumers and their families is substantial – factors of paramount importance.

The Growing Need for Accessible Mental Healthcare

The increasing demand for mental health services highlights a critical gap in healthcare access. Traditional models often present barriers to care, including cost, stigma, and geographical limitations.

Digital health platforms are designed to overcome these obstacles, offering convenient and affordable alternatives. These solutions frequently incorporate telehealth, mobile apps, and online therapy to broaden reach and improve patient engagement.

Investment Trends in Mental Health

The significant influx of funding into mental health companies signals a growing recognition of the importance of this field. Investors are acknowledging both the societal need and the potential for innovation.

This financial support is enabling companies to expand their services, develop new technologies, and conduct research to improve treatment outcomes. The $3.1 billion raised represents a substantial commitment to addressing mental health challenges.

Impact of Companies Like Brightline and Ginger

Companies like Brightline and Ginger are at the forefront of this digital health revolution. They are pioneering new approaches to mental healthcare delivery.

By leveraging technology, they are able to provide personalized, evidence-based care to a wider population. Their success underscores the viability and effectiveness of digital health solutions in addressing complex healthcare needs.

Identifying Early Success Indicators Through Measurement

Patient-reported outcomes (PROMs) offer a valuable method for gauging the initial impact of digital health solutions on end-users. Utilizing PROMs allows for a more comprehensive evaluation of a company's strategy by directly soliciting feedback from the individuals utilizing the solutions.

Today’s consumers, particularly those managing chronic conditions, are increasingly informed and actively seek data to enhance their health. Traditional treatment pathways often present obstacles related to accessibility, outdated systems, and a lack of clarity regarding the connection between daily choices and health status.

A key factor in Livongo’s achievements was its dedication to understanding the consumer and optimizing their experience. This unwavering focus on user experience ensured that treatment seamlessly integrated into daily life, rather than creating disruption – a factor demonstrable from the very beginning.

The ability to track changes in consumer behavior and reported well-being provides early signals of a digital health solution’s effectiveness. These insights can then be used to refine the approach and maximize positive outcomes.

The Importance of User-Centric Design

Focusing on the user experience isn't merely about convenience; it’s about empowering individuals to take control of their health. Solutions that minimize friction and provide actionable insights are more likely to be adopted and consistently used.

PROMs can reveal whether a digital health tool is genuinely addressing consumer needs and improving their quality of life. This data-driven approach allows for continuous improvement and ensures that resources are allocated effectively.

• Early identification of usability issues.
• Quantifiable evidence of impact on daily routines.
• Insights into consumer engagement levels.

By prioritizing the consumer perspective, digital health companies can increase the likelihood of long-term success and positive health outcomes. A consumer-centric approach, validated by PROMs, is essential for navigating the evolving landscape of digital healthcare.

The Superiority of Modern Healthcare Experiences

Numerous emerging companies are tackling critical issues in healthcare that have historically lacked comprehensive solutions. Conditions like eating disorders, affecting a minimum of 9% of the global population, and Obsessive-Compulsive Disorder (OCD), impacting 2.2 million U.S. adults, serve as prime examples.

Individuals currently managing these conditions often encounter significant obstacles within the conventional treatment system. Traditional care frequently necessitates frequent in-person appointments at facilities primarily situated in major urban centers.

This conventional model often proves inadequate in providing the consistent support needed in a person’s everyday life and familiar surroundings. Fortunately, groundbreaking, innovative platforms are demonstrably enhancing the standard of care.

For instance, NOCD provides a telehealth solution for OCD, delivering care directly to patients through remote therapy and equipping them with resources and a supportive community. Similarly, Equip offers comprehensive eating disorder treatment delivered at home via video conferencing and secure messaging, tailored to each individual’s schedule.

The evolution of healthcare demands a corresponding shift in how we assess early-stage digital health companies. While some will demonstrate a return on investment through quantifiable revenue increases or cost reductions for healthcare providers, others may require more time to exhibit these benefits.

A key characteristic of contemporary digital health solutions is their emphasis on personalized care, recognizing that a one-size-fits-all approach is often ineffective.

As investors focused on early-stage ventures, we strive to mirror this individualized approach when evaluating the value these startups provide to both consumers and the broader healthcare landscape.

Investment Considerations

• Personalized Care: Recognizing the unique needs of each patient.
• Accessibility: Removing barriers to treatment, such as location.
• Continuous Support: Providing assistance in the patient’s natural environment.

Evaluating these factors is crucial for understanding the long-term impact of these innovative healthcare solutions.

Note: The author maintains a board observer position at NOCD, Zerigo Health, and Brightline, all companies within the 7wireVentures portfolio, the author’s employer. Previously, Livongo was also a 7wireVentures portfolio company.