Digital health startups struggle when faced with high growth expectations

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Unrealistic growth expectations can spell trouble for digital health apps backed by venture capitalists unfamiliar with the healthcare industry.

The regulatory complexities within healthcare, coupled with the industry’s notoriously slow adoption of technology, have led many promising digital health startups to fizzle out after failing to realize the growth often seen among their consumer counterparts.

One digital health company, Sherpaa, beat the odds, but not without a tumultuous foray into the healthcare industry, according to Fast Company, which profiled the digital health app that allowed patients to securely text with physicians.

Initially, Sherpaa brought on investors who dealt exclusively with consumer technology, assuming that an outside influence would improve the app's integration into healthcare, according to the company's founder Jay Parkinson. Instead, Parkinson faced pressure from investors who were accustomed to the growth rates associated with consumer apps, and didn’t recognize the intricacies of the healthcare industry, which is more reserved and slower to integrate new technology.

Sherpaa eventually transitioned to a self-funded company, which Parkinson described as a "gift."

It’s a common problem among digital health apps that are backed by investors from the consumer world, venture capitalists told Fast Company. Often, health apps enter the healthcare marketplace backed by a lot of funding, but fail to meet elevated expectations.

"Physicians don’t like to spend money on software; hospitals aren’t known for making rational and rapid decisions; payers are tough; and employers aren’t the easiest to sell into, either," said Ben Rooks, a health IT consultant.

More consumers are using digital health tools as venture funding has remained steady, reaching $12 billion in the first half of 2016 alone. However, doctors have still voiced concern about digital health tools.

Last year, the CEO of the American Medical Association, James Madara, said healthcare must separate “digital snake oil” from those tools that are impactful. Months later, the AMA adopted new principles for mHealth usage and Madara urged doctors to get more involved in developing mHealth apps.