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Changed market sees edited digital health playbook, Rock Health panel says

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Sep 29, 2023

Illustration: Gabriella Turrisi/Axios

The curtains have come down on the digital health funding party, and while some are reeling from the festivities, others are getting back to work — and back to basics.

Why it matters: The market milieu that birthed bloated valuations and celebrated excessive funding rounds is no more, and stakeholders are readjusting expectations to fit the new market, experts told Axios.

Industry observers and founders spoke on an Axios-moderated panel at the Rock Health Summit in San Francisco this week.

What's happening: Investors and builders are working on a smaller and more focused basis with fewer dollars and a renewed emphasis on outcomes, the experts said Wednesday.

Here's what else has changed for digital health:

  • More of a focus on affordability and cost-savings: "We need to see a workflow, an offering, and financial terms that I can apply to at least 70% [of patients]," said Town Hall Ventures partner Meera Mani.
  • An emphasis on more practical use cases for technology, such as using generative AI to ease clinicians' administrative burden.
  • Sustained growth, rather than growth-at-all-costs: "You can't afford to plant all these seeds and see what blooms," said Carolyn Witte, the CEO of women's primary care startup Tia.
  • Building slowly and in the right order: "The hardest decision we're making right now is what not to do, and what to do in what order," Witte added.
  • Staying private rather than focusing on going public: "Where we start rolling our eyes is when [founders] start talking about going public," said Mani. "Just because the company delivers great outcomes doesn't mean they're ready for the public markets."
  • Focusing on evidence: "We need to see outcomes in order to make any type of investment," said Kiyana Turner, the director of digital transformation at Children's Hospital of Los Angeles. "Peer-reviewed studies are preferred."

Zoom in: Term sheets have seen some specific material changes in the last year, said Fenwick & West partner and digital health startup lawyer Michael Esquivel.

  • "It's here everybody, and the terms are ugly," Esquivel said Wednesday.
  • "In the new world, the world we're going to be living in going forward, we're back to historic norms of 3-5x," he continues.
  • "Great" companies might see multiples of 5-10x of revenue, he said.
  • "But we're not in the world of, 'I did $10 million in revenue last year, and I'm gonna go raise a billion dollars.' It's just not there. And don't try for it," said Esquivel.

Meanwhile, some fundamentals stay the same, like:

  • An emphasis on making health care more personalized and more consumer-centric.
  • For Medicaid-focused companies, building with limited resources: "We're used to innovating in a stark environment — a resource-poor environment," said Mani. "It wasn't fashionable to put money into government programs when the firm started."

The bottom line: "No, it's not like, 'Party like it's 2012,' for sure, but the focus on affordability and administrative ease is great," said Mani.

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