The Digital Health Market has been on a wild ride over the past few years. After a frenzied boom with sky-high valuations and investor enthusiasm, 2023 saw the wheels come off for many companies. I sat down with digital health legend Matthew Holt to make sense of it all and see what’s next for the industry.
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The 2023 Funding Shakeout
After years of exuberant funding with record investment rounds, 2023 has seen a major pullback. As Matthew highlighted, a hangover was inevitable following the “craziness” of the last few years, where digital health startups received $100-200 million in funding from Softbank and others despite low revenues.
With interest rates rising, investors are now being more selective. Many digital health startups failed or have undergone painful mergers. While deal flow has dropped back to 2016-2017 volumes, Matthew noted this is still well above the more anemic years of 2009-2012. He believes we’re seeing a “reckoning” where unrealistic valuations get reined in, but digital health remains a vibrant sector.
Winners and Losers in the Digital Health Market Shakeout
Mental health tech has been a big winner, with the pandemic driving investor interest and adoption of online solutions. Matthews expects providers to focus more seriously on managing mental health given the widening recognition of its impact on physical health outcomes.
On the AI front, some analytics startups that help identify at-risk patients show some promise. AI-based companies that are attacking physician burnout via automated documentation are worth watching as well.
He also highlighted startups using conversational AI to eliminate huge administrative hassles. With long hold times to complete tasks like prior authorizations, AI bots can hugely reduce provider frustration. While hype got ahead of reality, Matthews expects practical use cases for automation and AI to gain traction.
Will Big Tech Crack Healthcare?
It is surprising that major players like Amazon, Apple, and Google have struggled to disrupt healthcare. Matthew feels healthcare’s complexity, regulations, and entrenched incumbents have been insurmountable for these tech giants.
However, he sees opportunities in pharmacy supply chain management and medication adherence where a consumer-focused Big Tech solution could deliver real value.
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Advice for Digital Health Startups
For those daring entrepreneurs aspiring to build the next big digital health startup, in Matthew’s words,
“You probably need your brain tested.”
Beyond sheer determination, he stressed that raising money remains difficult and warned founders not to expect another funding frenzy anytime soon. To survive, companies should identify paying customers who can fund product development rather than banking on splashy VC rounds or Quick IPO jackpots. As Matthew wisely stated, “If it’s not working relatively easily and there’s not strong customer traction…find another wall to bang your head against.”
The Future Is Still Bright?
While the path ahead promises more disciplined growth, digital health still offers tremendous ways to improve patient outcomes and experiences while reducing waste. This balance between pragmatic funding and real-world utility points the way to companies that can build sustainable value over time versus chasing temporary hype cycles. Stay tuned as the next era promises exciting innovation alongside responsible disruption of healthcare.