If you’re a digital health or wellness founder looking for investors in this market, you’re entering at a time that is both fraught with difficulties and ripe with opportunities. Companies are laying off employees and investors are wary, yet the demand for digital health and wellness solutions is huge and is expected to keep growing: The digital health market is predicted to reach $1.5 trillion by 2030 with a CAGR (Compound Annual Growth Rate) of 27.7%.
What’s the significance of the current moment, and how can digital health founders make the most of their search for VC funding? Jeff Yasuda, CEO and Co-founder of Feed Media Group, has shared some of his best tips on how digital health startups can secure venture capital in his article, Eight VC Funding Tips for Digital Health and Wellness Startups.
To gain another perspective on what healthcare startup founders should be focusing on, Jeff had a chat with Cheryl Cheng, Founder and CEO of Vive Collective, to get her thoughts on what it takes to pique the interest of an investor, and how digital health apps and wellness tech startups can improve their chances of securing funding. Vive is a platform that specializes in building and investing in digital health startups with capital and resources at every step of their development, and Cheng knows the industry inside and out.
Jeff: At Vive, you’re so tuned in to digital health and every fluctuation and development in the market. Can you give us a quick overview of where things stand now, and how we got here?
Cheryl: We’re now in Phase 3 of the evolution of the digital health marketplace. In the first phase, early founders explored the potential and possibilities of bringing healthcare into the digital realm. The ability to have medical appointments online was still just a dream at this point. During Phase 2, funding was hot, and digital health companies were operating under an imperative to grow at any cost to achieve scale as quickly as possible. Now, in Phase 3, investors are intensely focused on profitability, clinical outcomes, and a company’s quantifiable efficiency at problem solving.
Jeff: It seems that in this current stage, digital health companies looking for funding have to be ready to prove themselves in order to remain competitive, is that right?
Cheryl: Yes, Jeff, the tide has shifted to a model in which companies need to provide a compelling and quantifiable argument for their business strategy. Investors want to see a measurable ROI within six to twelve months. I’m not talking about having a validated or peer-reviewed clinical trial in that period, but certainly initial data that support the company’s claims.
I recommend that founders move fast to make best use of the resources available. For many companies, the fastest way to acquire early users is most likely to go direct-to-consumer via a B2C strategy, but it depends on the core capabilities of the team and the product’s value proposition.
Jeff: How might a B2C approach benefit a startup trying to become more competitive in the bid for venture capital?
Cheryl: Going B2C, at least in the beginning, could be a path to developing enough user data to make a convincing case for the company’s strategy. As an example, let’s imagine a new weight loss product. Early adopters to a new product are highly motivated to try something that can quickly show results. With a small marketing budget and fast iterations, a good goal would be to attract 5,000 users. It’s a large enough sample set to do cohort analysis on retention and measure product-market fit.
Jeff: What are other approaches you would recommend for wellness apps and digital health startups to raise their profile and cultivate effectiveness data?
Cheryl: If it fits with the product, a powerful strategy is to attract research partners. If a founder has the opportunity to network with researchers in their industry, they should definitely make the most of those connections and see if they can get their product into clinical studies. Although this route may not be possible for all startups, having clinical study validation is a strong competitive advantage.
Jeff: Assuming the startup is gaining traction, what might a successful long-term strategy look like?
Cheryl: The long-term win which creates a viable ongoing business model at scale usually flips to a B2B model. Eventually, if successful at the early stages, a consumer-based go-to-market plan shifts to a B2B strategy when a large entity like an insurance company, health system, or a self-insured enterprise adopts the product for its patients or employees at scale. At this phase, there are significant revenue opportunities for the company which would attract the interest of investors at the Series A stage and beyond.
Jeff: Do you have any final words of advice for founders looking for digital health funding?
Cheryl: There are a lot of actions you can take to improve your chances of securing venture capital, but ultimately it all comes down to “founder DNA,” as I call it—the founder’s ability to make strategic choices that best fit with their skill set and then follow through.
Jeff: As a former VC myself, that idea truly resonates; I always looked for founders who not only had a specific super-power, but also had the self-awareness of that special trait in order to use it to their best advantage.
Thank you so much, Cheryl, for sharing your thoughts and giving us the benefit of your experience in the digital health field.
Cheryl: It’s my pleasure, and you are most welcome, Jeff.
Feed.fm is a B2B music streaming platform built to help businesses harness the power of music to inspire healthier lives and increase customer engagement.
4 min