Investing in digital health: our checklist for early-stage tech startups

This blog was originally published on www.medium.com. Written by Ekaterina Gianelli.

Being a founder is hard. Being a founder of a digital health startup is even harder. On top of working with multiple stakeholders to shake the old-school systems, creating a change in the market, selling to a complex ecosystem of payers, providers, pharma companies and others, you constantly have to worry about raising capital.

To make it a bit easier for you, we thought we’d share a simplified checklist we typically use when discussing with an early-stage startup in the digital health space. These are also the typical reasons we pass on an investment opportunity.

In addition to sharing our own views, we’ve asked a few founders of digital health startups to highlight some of their learnings. I hope the below summary can help you notice some of your strengths to double-down on, some flaws to fix, as well as make you better prepared for your next raise. This is the first version, which is likely to evolve in the future based on the feedback we get.


Our simplified checklist:
  1. Solid understanding of the digital health ecosystem
  2. Access to customers
  3. Medical experience in the team & board
  4. Engaging product
  5. Clinical validation, or thought leaders’ endorsements
  6. Potential to generate unique data
Here is what we are after:
1. Solid understanding of the ecosystem: instead of pitching a large total addressable market, we’d expect you to demonstrate a solid understanding of the market dynamics, existing players, public and private reimbursement schemes, and hospital IT budgets.

We also want to see that you know how to transition from initial pilots or early adopters to a stable revenue model (ideally, you’ve already tested your ideas and know where to double-down). Your success in scaling a tech startup in healthcare often depends on your ability to leverage large network effects. In order to do so, you have to know the ecosystem inside-out and be able to embed.

As a startup, you require a change in the market/behavior/technology. Creating change is uncomfortable because you have to go against the status quo (which many like and defend), yet you need to work with the system to make sure enough people within it follow/join you. In practice, you need to balance the work “with the system from within and against the system from the outside”, Udo Szabo,Beddit

“Our initial business model was selling software licenses to cancer centers. At the time, this model seemed appropriate, since so many companies preferred the model, as did investors. Soon, we came to realize that the typical hospital IT budget was very limited, as many had recently invested heavily in new EHRs. That’s when we thought we might need a change. We identified a growing mega-trend in cancer care — real-world evidence, where pharma companies increasingly invest. This means tracking patients’ well-being, symptoms and coping in a “real-life setting”, without having to sign up for heavy clinical trials. Cancer centers (and patients) are still the key users of Noona, but pharma companies that use Noona’s data to analyze the effect and tolerability of their treatments are the ones to pay”, Jani Ahonala, Noona

“One of the challenges disrupting healthcare is that the person you want to address is usually not the one paying. On the other hand, the people with the money bag might not have full insights as to what they “should” buy, at least not if you don’t naturally fit into the existing system. It’s crucial to find ways to give both sides what they need in order to have something sellable today. But if you truly want to disrupt, you can’t afford to let those potential compromises lead you too far astray”, Charlotta Tönsgård, Engaging Care

2. Access to customers: we look for access to top-tier clinics or physicians (if you sell to clinics), unique partnerships, and strong experience in marketing consumer services, as everything in digital health is centered around the consumer.

“You could argue that all teams (no matter the industry) need outstanding expertise in marketing, but I would say this is even more crucial for digital health startups. Why? Because health and wellbeing have a slower adoption curve — these services don’t trigger our short-term reward system, entertainment services do”, Hoa Ly, Shim

3. Team: on top of “the usual setup” (tech, product, sales, marketing), we expect you to have someone with medical background among the founding team, or at least as one of the first employees. We believe that to disrupt the system, you have to know how it works (be able to navigate the internal complexities of hospitals, or to clarify the value props for typically risk-averse clinicians, or to create the best go-to-market strategy).

We also encourage you to engage top-notch doctors, researchers, professors, and other thought leaders in your field in the advisory/board work. Often, their experience is invaluable.

“First, clinicians understand the customer. Despite us doing loads of customer development work and interviewing physicians and geneticists, over the years we have had hundreds of discussions and decisions where the question always boils down to ”it makes sense, but does this work in a hospital environment?”. These decisions range from very practical to strategic. Unfortunately, asking key customers allows only a certain level of depth. Your customers don’t and should not have founder-like incentives to really think day and night about the best and boldest solution. Second, having clinicians in the founding team makes the team credible in front of the clinical community and creates brand value that is very hard to acquire otherwise”, Tommi Lehtonen, Blueprint Genetics

4. Engaging product: we want you to demonstrate good engagement or adherence from the end-users/patients, and high interest from the clinical community. When we invest in digital health, we are after high-quality products, not quick fixes.

As investors, we are not the right people to tell you exactly how engaging your product should be, or what the right 2nd-month retention is. You are in control! Develop customer-centric KPIs (your KPIs should help you evaluate if your product helps your users reach their goal or not). Explain how your metrics will change or evolve as you scale. If you don’t share these insights, there is a high chance an investor will do an unfair/wrong comparison to a company in an area she is more familiar with.

“Understanding the end-users and their life context is key to finding the engagement/retention metrics that make sense to your product. Not all products are meant to be used several times a day, every single day. It might be more meaningful to see that the users are still using the product after a year or two. Remember to look beyond metrics — what kind of emotional impact the users have when they engage with the product? It might be that a user engages with the product only a couple of times a month, but those moments are life-changing”, Kaisa Soininen, Yogaia

Sharing your story and your vision is as important as selling your product. You need to inspire and educate your market and your potential investors. If you can’t, it’s probably because your product is no different, and you probably shouldn’t be making it at all.

“What I think digital health services should try to strive for is to have a real *function* in people’s lives — and founders need to be good at showing this with metrics, as well as explaining in what way their service has this function. If founders can achieve this, it means their product matters and traditional retention metrics become less relevant”, Hoa Ly, Shim

5. Clinical validation and thought leaders’ endorsements: we want you to demonstrate evidence-based health outcomes via participating in at least one or two validation studies with some of the thought leaders in your space. If you want to convience healthcare professionals to buy your product, proof of clinical value is fundamental. However, proving that your intervention was successful in a clinical context is not enough, real-world evidence is (usually much more) important.
6. Potential to generate unique data streams: unique data sets are likely to be your strong competitive advantage in the future, so it’s good to start working on your data strategy early on.

“Think how you can “digest” the data into meaningful insights that will drive up the value of the data (be it stratified patient cohorts for clinical trials, proprietary biological associations, or something else). Think who will be “users” of that data (e.g. pharma) and speak to them already now so that they can guide you on what data they need. These early insights will help you think about data collection options today”, Karolis Rosickas, OME Health


To sum up, in our view digital health is not about numbers, it’s about quality. Don’t be obsessed with technology, signing new clients, or reaching 100k in MRR. Instead, focus on user adoption, engagement, adherence, and expansion within existing clients.

What we want you to demonstrate at the early-stage is that:

  1. You found a group of people that love your product (MRR could be one way of demonstrating it, but not the only one).
  2. You can expand this group in a scalable way to get a sizable market share.
  3. You can find a payer for it (either your users directly or someone else).

Some of the typical challenges, bad signals, and things to avoid:

“Death by pilot” / low closure rate from pilots to paying clients / slow transition from pilots to full roll-outs: we see many startups working or piloting with huge clinics or corporate clients (typically, very slow moving animals), but running out of money before the end of the pilots. To protect yourself, carefully choose who you partner with. Make sure your expectations are aligned from the beginning. Get buy-in from multiple stakeholders within your client already before you start the implementation. Agree on a plan of how to move to the next stage. Reposition pilots as phased contracts. Don’t tailor your product to one specific client, unless you get paid to do so. Here is a more detailed post on this topic from Rock Health.

Low engagement from attractive clients: having 10 people using your product in a company of 1000 employees is usually not a great sign. Often it means that either your product is not great (doesn’t move the needle), or you don’t know how to sell it. Either of these is a bad sign. In our view, it’s better to have fewer clients that are engaged than more clients that aren’t.

MRR vs. clinical validation: There is a lot of noise in the digital health space today, so optimizing for MRR is a short-term game. Being accepted by the clinical community is a big advantage.

Being too local / not evaluating other markets properly: typically, we invest in companies with global potential (not in local copycats). If you believe that in your case it makes sense to grow market-by-market, try to get an understanding of how other markets operate as early as possible. Don’t be one of the teams to say that “you’ll figure it out later”.

Being too obsessed with technology: even though we are technology investors, we don’t think you should be obsessed with tech. You don’t need to spend lots of time integrating into hospital IT at the very beginning. Start with a lighter setup, use low-tech prototypes to validate if the concept brings value, do proper integrations/automation later.

Not paying enough attention to regulations: achieving and keeping up with fast evolving regulatory & security standards is one other challenge of digital health startups selling to hospitals/clinics.


Did I miss something important? Do you disagree with some of the above? Reach out to me or to your fellow entrepreneurs to discuss and get a second opinion. From my side, big thanks to all the founders for paying-it-forward and taking time to review and comment (thanks Hampus, Tommi, Udo, Jani, Charlotta, Hoa, Kaisa & Karolis).

Ekaterina Gianelli, Inventure
ekaterina@inventure.fi