Predictions for digital health start-ups launching and scaling amidst economic turbulence

Against the backdrop of fast-paced digital health fundings of the last two years, we’ll see some changes across early stage investment and operation of start-ups, says Mary Grove.

Digital health – innovation in software, care delivery, the infrastructure across healthcare – has been a red-hot sector to be building and investing in and the industry has seen record-breaking growth over the last few years.

Within that, the palpable shift of more resources and attention focused on women’s health has been meaningful.

In 2021, total investment in women’s health surpassed US$1bn for the first time and it is expected to hit US$60bn by 2027.

At the end of the day, women’s health is health. But I’m excited to see the continued focus on women as the patient population and decision maker.

After all, women account for half of the world’s population, not to mention 70-80 per cent of all household spending decisions.

As managing partner at Bread and Butter Ventures, I see the enormous economic opportunity around investing in women’s health, and it’s one of the reasons I’ve made it a key part of our digital health practice.

Over the last two years, we’ve invested in companies like Gabbi, Odela Health, Delfina, Nest Collaborative and Myya.

All of these teams are led by female founders or co-founders who are building with half of the world’s population in mind.

Across our portfolio, 54 per cent of our companies are led by female founders. We are investing in companies built by and for communities of all types, and the importance of democratising access to quality healthcare is one of our core beliefs.

As both the VC and digital health world reckon with the impacts of our current economic turbulence, we’ll see some changes across early stage investment and operation of digital health start-ups.

Against the backdrop of fast-paced digital health fundings of the last two years, how will startups fare amidst economic turbulence? Here are my predictions:

#1 – Seed rounds will get larger

As the public markets continue to swirl, we’ll see continued pressure at later stage venture rounds in the private market push more pressure downstream toward early stage funding rounds.

This is making it slower and more difficult to raise early stage rounds. That said, the boom of new funds raised in 2020-2022 are ripe with capital to deploy, and while it will be competitive, a crop of new seed companies will be funded.

I predict we will skip over the US$1.5-2m seed rounds and see rounds in the US$3-5m range be funded out the gate as investors will want to ensure these bets have enough capital to execute their initial go-to-market plans and derisk before they are back in market raising again.

-> What this means for start-ups

Initial launch/pre-seed rounds will be larger. Your lead investor will be more key than ever in terms of building a syndicate of great investors around the table who can support you through this fundraise and beyond. Think about what types of investors you want to assemble around your table.

#2 – Vision is paramount and incredibly important, but derisking and proving early results as quickly as possible will be equally important 

Companies will be judged on results, revenue, and immediate execution vs. selling the long term platform vision. There will be increased pressure early on to prove that your solution is one a customer wants and is willing to pay for. What are clear paths to proving that you have a differentiated tech solution that someone – an employer, a payer, a provider, or patient will pay for immediately.

-> What this means for start-ups

Networks and connectivity will be more important than ever in giving you a jumpstart to those first pilot partnerships and commercial relationships. Start with small pilots of necessary and prove you can land and expand.

#3 – Major B2B business model competition.

There will be increased competition in B2B business models that target employer go-to-market channels and ultimately payer partnerships. This will happen because rising customer acquisition costs of DTC channels represent a particular challenge in a downturn. Increasingly, companies will need to focus on differentiating themselves to employer or payer customers.

-> What this means for start-ups

Not only landing but seeing success with those initial paid pilots will be more important than ever. My advice is to size up your huge target market and then test targeted pilots as quickly as possible. Focus on utilisation and engagement as your two most important metrics out of the gate to build a sticky product that users love.

#4 – Start-ups will target different patient populations

As digital health companies continue to push to grow the size of the pie of who they serve, there will be more investment in women’s health solutions that tackle populations served by Medicaid and those in rural communities.

This next wave of innovation is about inclusion, and competition to grow companies quickly also means expanding to provide solutions for all.

-> What this means for start-ups

Think differently. Be intentional with how you build product. We’re certainly seeing the rise in companies utilizing telehealth and asynchronous services to reach more patients. Are there ways of scaling locally within communities, cities, and states that allow you to improve patient outcomes and grow the business?

Whatever the macroeconomic environment brings, investing in women’s health technology remains and will remain more important than ever and the segment will continue to grow.

The adage “constraint breeds creativity” rings true in tougher economic times and I’m optimistic that brilliant companies will launch and scale even amidst these macroeconomic headwinds.

We’re still in the early chapter of a healthcare revolution that is still being written, with women’s health at the core of that economic opportunity.

Mary Grove is managing partner at Bread & Butter Ventures where she leads the firm’s investments in digital health. She was previously an investment partner at Revolution’s Rise of the Rest Fund, following 15-year career at Google. She loves working with early stage companies and working on issues of equity and democratising access to capital.