Startups, Health Tech, Health Services

Digital health startups saw better-than-expected revenue during the pandemic

According to a survey conducted by Catalyst @ Health 2.0, a whopping 41% of digital health companies said their revenue was above expectations last year. Despite reporting longer sales cycles, most companies still were optimistic about their business prospects going into 2021. 

Despite a long and difficult year, most digital health companies painted a rosy picture going into 2021. The majority said their business prospects and the investment climate had improved since the start of the pandemic, according to a survey of leaders from 180 digital health companies conducted between November and March by Catalyst @ Health 2.0. 

Many of the respondents were relatively small companies; about half had fewer than 20 employees. The vast majority were selling software products, though a little over half were also selling services. Their customers largely included providers and health plans. 

About a third of the companies reported having no revenue, and a fifth brought in less than $500,000 in revenue in 2019. In spite of this, they were bullish about their prospects for 2021. 

Part of that optimistic attitude might be chalked up to the changes digital health companies experienced last year. As health systems rushed to roll out telehealth programs, and health plans adopted more digital health solutions, many startups reported a revenue boost.

A significant number of respondents — 41% —  said last year’s revenue surpassed their expectations. By contrast, about a quarter of companies said had they brought in less than planned in 2020. 

Several digital health also reported an uptick in usage last year, an important metric for telehealth companies and other digital health companies that provide a benefit covered by health plans. A total of 65% of companies said usage had increased more than expected, while only a miniscule number saw usage decrease. 

Despite companies’ overall seemingly positive attitudes, one factor might put a damper on their plans: longer sales cycles. About 44% of all companies reported sales cycles had increased since the start of the pandemic, while 30% reported no change. 

“I was a little surprised that given sales cycles were in general longer, that everyone was so optimistic and felt they had done so much better than planned,” Matthew Holt, chairman of Catalyst @ Health 2.0, wrote in an email.

And while digital health funding shattered records in the last year  if the multiple recent $100-millionand-up funding rounds haven’t already made it clear  not all startups have benefited equally. Of the 62% of respondents who said the investment climate had improved in the last year, later-stage companies were more likely to report favorable conditions. 

Several leaders of smaller startups reported challenges with firms doubling down on existing portfolio companies, perhaps to ensure their survival through the pandemic, rather than making new investments. In other cases, they faced the challenge of not raising more than needed in a market where valuations are soaring. 

“It’s a Catch-22. More interest, but they want to write larger cheques than we need,” one startup wrote. 

Photo credit; Maria Stavreva, Getty Images