ROI and Clinical Validation Will Determine Digital Health Startups’ Success in 2023: GSR Survey

The ability to demonstrate a measurable return on investment and prove the technology’s clinical validation will be the most significant indicators for success for digital health companies in 2023, as per the latest survey by investment firm GSR Ventures.

The survey’s respondents, who included more than 50 digital health venture capital investors,  said that ROI was “important” or “very important” to company success, and 79% said the same for clinical evidence and trials.

The report stated that the ‘ability to demonstrate ROI has always been important for digital health startups, but it has become even more crucial amid a changing economic landscape in which investors are guarding their capital more closely.’

As per the data, in the third quarter of 2022, ‘digital health companies garnered the lowest quarterly funding total in the past 11 quarters. The sector raised $4.6 billion in the third quarter — this represented a 36% quarter-over-quarter drop and a 72% drop from its all-time high of $16.8 billion in the second quarter of 2021.’

The investors surveyed have said they expect digital health’s overall fundraising total to be between $15 billion and $25 billion in 2023. They said valuations will go down in 2023 by around 20% for seed-stage investments, while valuations would drop by 20% to 40% for Series A and Series B investments.

The investors identified provider shortages and burnout as the operational challenges that will provide the most opportunity for startups to innovate next year. They also pointed toward changing reimbursement models and interoperability. More than half of investors said that oncology is the most promising space for startups to enter, followed by mental health, neurology and primary care.

GSR is an early-stage digital health investment firm with over $3.5 billion in AUM, investing in digital health companies that leverage emerging technology to drive monumental improvements in efficiency and effectiveness.

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