Don’t Know What Digital Health Is? Here’s A Look At The Past 10 Years

The first half of 2017 was a big moment for healthcare — more specifically, the disruptive innovations being created by digital health companies.

There were 188 digital health deals in the first half of 2017, raising $3.5 billion. And assuming this investment trend continues through Q4, it’s anticipated that 2017 will see $2.7 billion more in digital health funding than last year.

But things weren’t always this way.

For many years, digital health investments were few and far between. According to Modern Healthcare, there were only 81 digital health companies funded in 2011, with total venture funding at $1.1 billion. Comparatively, in 2016 there were 304 digital health companies that received investments worth a total of $4.3 billion.

That’s staggering, to say the least.

This trend doesn’t seem to be slowing down anytime soon.

Accenture reports that year-over-year funding growth in the digital health space is about 22 percent. And this growth isn’t solely from within the United States. “International digital health funding has growth 5x since 2013, primarily in China, India, and Israel.”

So, what is the result of all this growth? And more importantly, what can the past 10 years tell us about the decade to come?

When digital health investments first came onto the scene, early investments were made in novel ideas that sounded great on paper but had yet to be tested or integrated into the red-tape-filled healthcare system.

What happened?

A lot of ideas turned out to be great in theory but impossible to integrate. And investor money was spent on exploring the space, not necessarily pioneering it.

In the past five years, however, both investors and entrepreneurs have shifted their strategies.

Entrepreneurs have integrated themselves deeper into the healthcare system.

One of the biggest problems with so many digital health startups is their lack of understanding with how things currently operate. Healthcare is a firmly established industry, which means a brilliant idea that exists outside of context isn’t viable.

Let me give you an example:

I am not the first entrepreneur to create a digital health application that works to solve breakdowns in the patient engagement aspect of healthcare. However, being a surgeon, I am much more aware of the day-to-day issues and nuances between physician and patient than an entrepreneur approaching the issue from the outside. Actually, that’s a big reason why I chose to develop my own platform, Pulse, because the platforms other digital health entrepreneurs had built were great in theory but lacked a firm understanding of the day to day.

Investors have changed their strategy from early-stage startups to later stage, proven concepts.

Enough exploring has been done within the digital health space for healthcare companies (spending money on creating minimally viable products) and investors to confidently speculate several areas where innovation is most likely to succeed.

Today’s investment strategy is to choose later-stage startups that have created a product and proven some sort of market response — and where value is most likely to be provided. According to Accenture, “This uptick in investments in the later stages of companies’ growth is evident from the 12 percent increase in series B, C and D funding from 2014, while seed and series A investments dropped by 13 percent in the same timeframe.”

Here’s why digital health investments are only going to increase from here.

When you survey all this data and then pull back to extract an overarching analysis, there is a very clear trend that’s happening: healthcare companies are scrambling to disrupt their own business.

It’s far more cost efficient for a huge healthcare brand to invest millions into handfuls of smaller startups and hoping one of them becomes a market disruptor, than for them to try to innovate internally. Healthcare companies are well-oiled machines with red tape, regulations, and firmly established processes and protocols. It would take them far longer (and cause much more of a hassle) to incubate early-stage ideas.

So instead, they are trying to capture market share by investing in the very ideas that are looking to disrupt their very existence.

Anyone who says digital health is “dying,” or has been over-funded, doesn’t see the gold rush that’s happening to capture market share of an age-old industry.