TechCrunch: It’s Time for Investors to Redefine How We Evaluate Digital Health Startups

This article originally appeared as a contributed piece from Alyssa Jaffee, Partner at 7wireVentures, on TechCrunch: It’s time for investors to redefine how we evaluate digital health startups

This was a record-breaking year for private investment across digital health. Investors poured billions of dollars into digital health solutions with great promise of driving innovation in a highly antiquated and inefficient industry.

While digital health has captivated the attention of investors and received validation from consumers, providers and healthcare stakeholders, early-stage entrepreneurs are being required to address the highly complicated yet mission-critical question: How can I show value and ROI?

With any new innovation, proving out a financially substantiated ROI case requires a combination of time and data, and digital health is no exception. In healthcare, proving ROI ultimately means calculating how much a digital health solution has either improved in outcomes or realized in cost savings for the sponsoring organization and its members.

While a claims-based ROI analysis is a crucial long-term measurement of success, industrywide innovation will require stakeholders across the ecosystem to initially think creatively and consider proxies for demonstrating value early on. Rather than allowing claims data to be an inhibitor of innovation, investors must reframe their focus on the long-term direction of the business, the value delivered for the end user and the broader impact of the company on the healthcare system as a whole.

Three key questions can help reshape measurement and investment in early-stage startups:

  • What is the problem being solved?
  • What can be measured to identify early indicators of success?
  • Why (and how) is the experience delivered so much better than the status quo?

What is the problem being solved?

Digital health solutions are solving some of the biggest challenges facing our society today. Take access to mental health care, for example. During the COVID-19 pandemic, about four in 10 adults in the U.S. reported symptoms of anxiety or depressive disorder.

Between March and October 2020, the percentage of emergency department visits for children with mental health emergencies rose by 24% for children five to 11 years old and by 31% for children and teens 12 to 17 years old.

With mental health now in the spotlight, there’s also been a meaningful increase in investments in mental health companies. Mental health is the top-funded therapeutic focus this year, with $3.1 billion raised as of the end of September.

Companies like Brightline and Ginger offer comprehensive mental health solutions that bring much-needed accessible care to consumers across the country. The problems these companies are addressing are enormous, and the potential to help consumers and their families is even greater — key metrics that shouldn’t be overlooked.

What can be measured to identify early indicators of success?

Patient-reported outcomes (PROMS) are a great way to measure the direct impact of digital health solutions on consumers early on. Through PROMS, we can better understand if a company’s approach is working by going right to the source: the consumers who are using it.

Consumers are sophisticated, especially those with a chronic disease, as many want access to information to help improve their own health outcomes. For many consumers, status quo treatment options are fraught with access challenges, antiquated technology and little to no insight into how daily decisions are impacting one’s health.

One of the reasons why Livongo was so successful was because the company focused on understanding the consumer and improving their experience. By having a relentless focus on the user experience, Livongo ensured that treatment was a natural part of a consumer’s day instead of friction against it — metrics that could clearly be illustrated from the offset.

Why (and how) is the experience delivered so much better than the status quo?

Many early-stage companies are addressing key healthcare consumer pain points that society has not yet been able to fully solve. Take eating disorders, which impact at least 9% of the population worldwide, or OCD, which impacts 2.2 million adults in the U.S, as examples.

For many consumers managing these disorders, the status quo treatment experience is fraught with access challenges and regular visits to a brick-and-mortar facility (typically located in large cities). Such approaches ultimately fail to address the support someone may need daily when in their own environment.

Fortunately, new, innovative solutions are creating significant improvements over the status quo. NOCD offers an OCD telehealth solution that meets consumers where they are and where they are going. It delivers teletherapy remotely and arms consumers with tools and a community of like-minded individuals to significantly improve outcomes. Equip offers consumers a holistic care team that provides eating disorder treatment at home via video sessions or secure messaging, all on an individual’s own schedule.

As healthcare evolves, so must our approach to evaluating early-stage digital health startups. While some startups will be able to show ROI by calculating how much their solution has either increased revenues or realized in cost savings for the sponsoring organization, others won’t be able to until later in their journey. Digital health solutions today stress a personalized, one-size-does-not-fit-all approach.

As early-stage investors, we try to take that same approach when evaluating and measuring the value early-stage startups bring to the consumers they serve and the healthcare ecosystem more broadly.