ROI and Clinical Validation: A Must for Digital Health in 2023

Results from a survey by investment firm GSR Ventures have indicated that a measurable return on investment (ROI) and proof of clinical validation of technologies, will be the most significant indication of success for digital health companies in 2023. 

Why it’s Notable:

• In line with the current tech recession, digital health funding has been dropping quarter-on-quarter, since an all-time high of $16.8B in Q2 of 2021. The ability to demonstrate ROI has always been important for digital health startups, but a measurable ROI will be even more important for investors as the economic climate becomes more uncertain heading into 2023. 

• There was a massive influx of capital into digital health companies in 2021, many even gaining unicorn status. However, this contraction in the market will surely lead to a decrease in the startup valuations seen in the past few years. In fact, it has been predicted that the valuations will decrease in 2023 by approximately 20% for seed stage investments, while valuations will drop 20% and 40% for Series A and Series B investments. 

• Few digital health startups have robust clinical validation for their products, many choosing the wellness route, which doesn’t require clinical validation. For those that do require clinical validation, often they will take the approach of - implement now, clinically validate later, through post-market surveillance. 

Industry Implications:

• Venture capitalists (VCs) traditionally invest in entrepreneurs rather than specific solutions.  VCs invest expecting solutions to undergo multiple iterations, and startups rely on multiple rounds of funding as they iterate through product development. This may change as investors pull back, forcing startups to produce a more scientifically validated solution before seeking investments from VCs. 

• Across the board emphasis is being placed on clinical validation or clinical efficacy. The next phase of digital health and investments in this space will likely focus on segregating solutions which actually clinically work from those which cannot back up their efficacy/effectiveness claims.