What Digital Health Trends Are VCs Embracing and Ignoring?

A group of venture capitalists recently sat down at Vator Splash Health 2017 to discuss the latest trends in digital health. The panelists, Dave Schulte of McKesson Ventures, Patrick Chung of Xfund, Rebecca Lynn of Canvas Ventures, Michael Dixon of Sequoia Capital, and Rebecca Woodcock of 500 Startups, discussed what’s hot and what’s being overhyped in the healthcare startup world.

When asked about what interested and didn’t interest the panelists in terms of investments, they pointed out that what appears to be hot for startups is artificial intelligence and machine learning. However, they were generally skeptical about whether AI and machine learning are going to transform the healthcare sector in the short term.

“You have to think about a service layer on top of software and automation,” said Schulte. “To me, the hype on AI and machine learning is a little bit ahead of where we are.”

The panelists also discussed what an investor who wants to see that a startup has some traction should look for. Although it depends on who the customer is and how competitive the market is, they did agree that pilots are not as valuable as they used to be.

“We place a lot of emphasis on customer calls, so we want to be able to speak to the person using the product,” Schulte said. “There are no hard and fast rules, but five paying customers saying the product works as described and the contract will be renewed” is worth a lot more than a pilot.

According to the investors, here’s what’s hot: Medication adherence, personalized medicine, the intersection of health and finances, and marketplace transparency.

What’s overhyped? Population health, analytics, and insurance startups trying to acquire the hardest section of the population to help.

Many healthcare startups need to consume more cash than other startups due to the expense of developing hardware or dealing with regulatory structures. When asked if the panelists view funding healthcare startups differently than they view funding others, most agreed that there wasn’t much difference – but what that means in practice is that high-cost hardware startups may have a difficult time securing funding.

See the full video here.