How over-investment is killing digital health companies


The future of public health is set to become increasingly digital, with technological advancements enabling healthcare players to provide more targeted and effective interventions to patients worldwide.

The coronavirus pandemic accelerated the rise of digital health and caused a shift towards using digital software platforms to allow the economy to continue functioning.

Digital technologies were used, among other things, for online medical consultations from home and for increasing efficiency in the diagnosis and treatment of patients through telemedicine.

In the US, the federal government allowed more flexibility in digital healthcare practices, resulting in an unprecedented increase in the percentage of doctor visits happening online.

Digital health investment

Alongside growth of adoption, there has also been an acceleration in the growth of digital health start-ups and the venture investment dollars that follow.

The digital health market is estimated to be growing at a compound annual growth rate of around 25% from 2019 to 2025 and, given this rapid market expansion, it is unsurprising that the sector has captured the attention of many investors around the globe.

According to the CB Insights Healthcare Report Q3 2021, in Q1–3 2021 alone, US$40 billion went into digital health worldwide, spanning across more than two thousand deals and 33 new digital health companies who received unicorn valuation.

The health tech sector’s 2022 venture capital funding fell short of 2021, dropping about 30% from US$39.3 billion in 2021 to US$27.5 billion in 2022. However, 2022 investments were still approximately 30% higher than in 2020, and more than doubled from 2019.

While on the surface these figures might suggest a promising future for digital health, the collapse of multiple health tech firms despite substantial funding suggests too much VC investment could be doing more harm to the sector than good.

Babylon Health

Babylon Health, based in London, was founded in 2013 and offered virtual primary care, including telehealth appointments and chatbot-style symptom checkers designed to triage patients.

Once a leader of UK health tech, Babylon secured early investment from Saudi Arabia’s sovereign wealth fund, Swedish venture capital group Kinnevik, and data company Palantir. However, having spurned London with a $4.2 billion SPAC merger Stateside as its popularity soared during the coronavirus pandemic, its market cap is now just $5,000.

Last year, the company drastically scaled back its NHS partnerships, championed by former Health Secretary Matt Hancock, while net losses more than doubled to $63.2 million in the three months to the end of March.


Biofourmis is an AI remote monitoring and digital therapeutics company, which offers home care tools to help remotely monitor acute and post-acute patients, then alter a care team when a patient's condition changes from their personal baseline.

It also offers digital therapies, including a heart-failure tool, dubbed BiovitalsHF software, that received FDA Breakthrough Device Designation in 2021. The tool aims to monitor patients and help them optimise their medication dosage.

Additionally, Biofourmis provides a virtual specialty care platform called Biofourmis Care, focused on managing patients with chronic conditions like hypertension, lipid management, heart failure, and diabetes.

The firm recently confirmed it had laid off 120 employees across multiple nations, including 48 employees in the United States and, a month after conducting the significant layoffs, the company’s CEO, Kuldeep Singh, quietly stepped away from his role.

The job cuts came just a year after the business scored $300 million in Series D funding, bringing it to unicorn status with a valuation of $1.3 billion.

Pear Therapeutics

Pear Therapeutics developed a range of apps designed to help treat addiction, insomnia, PTSD, chronic pain, irritable bowel syndrome, and more.

In 2017, the company’s substance use disorder programme, reSET, became the first-ever digital therapeutic to receive FDA clearance.

However, less than two years after Pear Therapeutics went public in a SPAC deal worth $1.6 billion - which in turn came after it had raised more than $400 million in venture capital - the firm’s assets were sold in an auction for just over $6 million.

This came after Pear filed for bankruptcy following a rocky tenure as a publicly traded company that included multiple waves of layoffs and steadily mounting costs.

Bright Health

Bright Health, an insurtech company, was valued at $11.2 billion at its peak, cementing its status as Minnesota’s first unicorn start-up.

The business earned praise and recognition from start-up boosters and investors, and even counted high-profile figures like Andy Slavitt, who ran Medicare and Medicaid in the Obama administration, on its board of directors.

In a 2021 prospectus, ahead of its eye-popping $924 million initial public offering that year, Bright noted that the company was serving more than 623,000 consumers across 14 states.

However, as of the start of 2023, Bright had completely pulled out of the insurance business in all but one state. The company had exited the market for ACA plans and was instead focused exclusively on Medicare Advantage in California, alongside limited primary care offerings.

Bright Health went on to receive a delisting warning from the New York Stock Exchange and had still failed to turn a profit.

Too much of a good thing

The hype surrounding digital health and the large amounts of venture funding that the sector has received in the last decade have resulted in many disappointments.

In most cases, investors expect the money they have put into a fund to be returned, with profits, within 10 years. However, recent data published by Bessemer Venture Partners suggests most digital health companies do not reach profitability within that timeframe.

The data shows that the average digital health company generates free cash flow margins near 0% (for tech-enabled services) or low single-digits (for healthcare SaaS) by the time they have hit $100M+ in annual recurring revenue (ARR).1

According to the article, reaching $100M+ in ARR takes a median of 10.2 years for healthcare SaaS businesses and 10.6 years for tech-enabled services businesses.

This would suggest that, in 10 or more years and at a $100M+ ARR, most digital health companies are unprofitable or barely profitable. As a result, many health start-ups are still burning cash by the time their VC backers are pushing for an exit.

Rather than VC capital being a capitalist to help them grow, many health tech firms are solely relying on funding as their only strategy to survive as a business.

While over-funding can accelerate innovation temporarily, it creates vulnerability, and start-ups become susceptible to market fluctuations and investor sentiments. Not only that, but over-reliance can create a situation where they are beholden to their investors and cannot make decisions in the best interests of their company.

Although funding is a fuel source for innovative companies, it is no measure or guarantor of success.


It is clear that health tech firms can no longer rely solely on investors. They instead need to focus on building a solid business model that is profitable from the start.

By no longer depending on external investment to stay afloat, health tech start-ups can not only maintain ownership and control, but also work towards long-term success.

While there is no doubt that fundraising can provide initial support, profitability needs to be at the foundation of a start-up’s success. Health techs must be slow, good, and based on careful science to achieve longevity.

Shameem C Hameed
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Shameem C Hameed