Current market conditions show digital health startup funding has dropped since last year, but it’s not all bad news for business leaders who have an eye on the future while keeping their ear to the ground.
The current economic climate combined with ongoing rumors of a coming recession has impacted a number of digital health companies, leaving many to wonder how these startups will weather existing market conditions. In August, Business Insider reported that a total of seventeen digital healthcare startups have announced layoffs this year.
A recent RockHealth report on digital health funding during the first half of 2022 underscores the impact of current economic conditions with overall investments expected to reach $21 billion by the end of the year – $8 billion less than the $29.1 billion raised in 2021.
A first glance at these numbers may be distressing, but it’s not the total story. As RockHealth makes clear, investments in digital health startup companies will likely exceed 2020’s funding, clearing a path to reconsidered valuations and refined go-to-market strategies.
“While things may feel tough in the near term, companies that lean into these belt-tightening measures stand to emerge from 2022 as more resilient businesses, better positioned to navigate market scrutiny when the time comes to make a public exit,” write RockHealth researchers Ashwini Nagappan and Adriana Krasniansky.
In fact, there’s an argument to be made that existing economic conditions could lead to positive outcomes for the digital health startups capable of optimizing their business model to outlast the current economic climate. It’s worth remembering that some of the world’s most recognized brands – Google, Netflix, GE – were founded in the midst of global economic downturns. Microsoft began as a startup in 1975 during the oil embargo recession. Slack and Airbnb both launched during the Great Recession. These companies not only survived, but thrived because they built their business on a foundation designed to weather lean economies.
As a leader at a digital health startup in the mobile diagnostics space, I am acutely aware of the nuances within the healthcare industry and how our business model differs from the broader community of tech startups. One thing I know for sure: taking a Silicon Valley approach to digital healthcare business models rarely works. Instead, healthcare startup leaders need to be more calculated with the risks they take and focus on the long-term versus current economic conditions. Here are my top three pieces of advice for business leaders in the digital healthcare space.
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Focus on the long-term by designing a business model for the future vs right now
The primary key to building a thriving startup during an economic downturn is to focus on the future versus trying to capitalize on current conditions. During the early days of Sprinter Health’s launch in 2021, our leadership team had transparent conversations with the company’s investors about building a business designed to last well into 2024, 2029, 2036 and beyond. From day one we have been deliberate with every business decision – from the way we structured our business model to how well our product-market-fit improved the overall patient experience – to ensure our services provide a long-term solution versus answering a short-term need.
While the pandemic may have highlighted the need for more home-based healthcare services, it has never been the driving force behind our business model. As an on-demand mobile health-focused organization, our goal was to bridge the staffing gap for healthcare providers and systems by delivering “last mile” capabilities for home-based healthcare services. We put a priority on the healthcare professionals we hire and remain focused on the patient experience.
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If you are capitalizing on existing telehealth trends, it’s imperative your business provides a clear value to the market
Telehealth has been a popular buzzword within the digital healthcare market for some time now. As with so many technological advancements that have taken place during the last two years, the pandemic accelerated telehealth accessibility and services. But now, as the healthcare industry continues to be glutted with telehealth service offerings, it’s not enough simply to jump on the telehealth bandwagon.
To succeed in this particular niche of the digital healthcare market, telehealth providers must provide a clear value to the industry by boosting the patient experience. Of course, this can be accomplished in a number of ways, as long as you can show investors exactly how your business impacts the industry in a positive way.
For example, Sprinter Health was designed to take advantage of the growing popularity of telehealth services while enabling a much improved, and more affordable, experience for all involved. When used in combination with telehealth, we’ve found Sprinter Health delivers nearly 80% of the value of an in-office visit, with our “last mile” home-based services capturing 20% of needed patient data for the healthcare providers we partner with at a fraction of costs incurred with in-office visits.
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Push for growth, but adjust your pace
Business leaders in the digital healthcare market understand that growth is always top of mind for any startup organization. It’s often the reason entrepreneurs ramp up their workforce and take uncalculated risks with their business, moves that can result in a company growing too fast and, ultimately, costing the organization long-term stability.
We see this happening now with so many layoffs happening across the industry. Startup entrepreneurs are now being warned by investors that they may need to make their last round of funding last longer than anticipated. This warning doesn’t mean founders should halt growth plans, but instead, adjust their pace.
For savvy entrepreneurs, massive opportunities still exist across the digital healthcare space
Even though rising valuations for digital healthcare startups will be slowed compared to where they may have been six months ago, I remain optimistic about the industry. There are still plenty of funds available for innovative organizations that deliver measurable market value (RockHealth reports that veteran digital health investors are, “ready to stay the course and support their existing portfolio companies … a potential silver lining for investors and their portfolio companies.”)
What we are about to witness is the cream rising to the top with first-rate healthcare service providers gaining the oxygen they need to breathe. My hope during this economic downturn is that the digital healthcare companies truly providing cutting-edge capabilities and improved patient experiences are being given the space to shine – vastly improving our industry as a whole.
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