The Catalyst @ Health 2.0/Wipfli Survey on the State of Digital Health 2021 - White Paper

Survey on the State of Digital Health - 2021 1
PUBLICATION: JULY 1, 2021
Written by: Elizabeth Brown & Matthew Holt - Catalyst @ Health 2.0

TABLE OF CONTENTS
CONTENTS
Executive Summary ..........................................................................................................................2
Introduction .........................................................................................................................................4
Key Findings.........................................................................................................................................5
Demographics.................................................................................................................................5
Customers & Products ................................................................................................................6
Revenue.............................................................................................................................................8
Regulation & Data Security.......................................................................................................9
Business Operations .................................................................................................................11
Dealing with the “New Normal”...........................................................................................12
Funding & the Investment Climate ....................................................................................14
Conclusion..........................................................................................................................................15
LIST OF FIGURES
Figure 1 Respondents were asked to select the number range that corresponded
best to the number of employees at their company, separated by company stage.
....................................................................................................................................................................5
Figure 2 The Five-Stage Company Pathway ..........................................................................5
....................................................................................................................................................................5
Figure 4 Answers to the question, “Who are you targeting?” (Multiple answers
allowed) .................................................................................................................................................6
Figure 5 Answers to the question, “What are you selling?” (Multiple answers
allowed) .................................................................................................................................................6
Figure 6 Answers to the five-choice question, “Since the start of COVID-19,
compared to what you were expecting, has the usage of your products &
services:…”............................................................................................................................................7
Figure 7 Answers to the three-choice question, “Since the start of COVID-19,
compared to what you were planning at the start of 2019, have you:…”.................7
Figure 8 Revenue changes from 2019 to 2021 for digital health companies in
aggregate and across the five stages. Respondents were asked to select the
dollar range that corresponded best to their actual revenue in 2019, 2020, and
estimated revenue in 2021............................................................................................................8
Figure 9 Answers to the five-choice question: “Since the start of COVID-19,
compared to what you were expecting, has your revenue:…” ......................................9
Figure 10 Answers to the four-choice question: “How aware are you and your
organization about international, federal, and state regulations pertaining to
your products/services? (E.g., HIPAA/21st Century Cures Act/FDA Approval)”
................................................................................................................................................................. 10
Figure 11 Answers to the four-choice question: “Since the start of COVID-19,
compared to what you were expecting, have you:…”..................................................... 11
Figure 12 Answers to the five-choice question “How does your company
manage your internal technology such as CRM, reporting tools NOT shown to
outside clients?” No respondent chose “Other” as their response. .......................... 12
Figure 13 Answers to the question, “Has the transition to “Work-from-
Home”:…” (Multiple answers allowed)................................................................................. 12
Figure 14 Answers to the question “Do you believe that overall COVID-19
will:…” (Multiple answers allowed) ....................................................................................... 13
Figure 15 Answers to the free response question: “How much money have you
raised in total?”................................................................................................................................ 14
Figure 16 Answers to the three-choice question: “Since the start of COVID-19,
compared to what you were experiencing before, has the investment climate for
your organization in general…”................................................................................................ 14

EXECUTIVE SUMMARY
In an effort to assess the digital health landscape during and after the
major waves of the COVID-19 pandemic, Catalyst @ Health 2.0 and Wipfli
collaborated on an in-depth survey distributed to their wide networks.
The survey, titled the “Survey on the State of Digital Health”, received over
300 responses from public and private digital health companies,
investors, consulting companies, life sciences organizations,
pharmaceutical companies, medical device manufacturers, payors,
providers, employers, and a host of others. Following a successful
webinar in May of 2021 in which the key findings were discussed, the
project partners are now pleased to offer a more extensive look into the
survey findings.
THE KEY MESSAGE: COVID-19 was particularly good for digital health
companies--on average. Most are very optimistic but, despite the massive
increase in funding since the brief (but real) post-lockdown crash, most
digital health companies remain small and struggling for funding, revenue,
and customers.
THE DEMOGRAPHICS: Most digital health companies are small startups.
Given the ease of starting a company and the difficulty in selling to larger
incumbents or getting a large number of consumers as users, that is not a
surprise. In our sample, 50% of digital health companies had fewer than
20 employees, and 21% had fewer than 5. It is only when companies are
“Actively Scaling” that they start to really grow their employee base, with
44% of companies in this stage having more than 100 employees.
CUSTOMERS & PRODUCTS: Most digital health companies are targeting
more than one type of customer. 64% were targeting providers with 58%
targeting payers. Substantial minorities (33% & 35%) were selling to
consumers and employers, respectively. And, of course, there are several
commonalities--of the companies who said they were targeting
consumers, 53% also targeted payers and providers. When looking at the
products and service offerings companies are providing, almost all (89%)
were selling software, with over half (57%) selling services--in fact more
than half of those selling software were also selling services.
COVID-19’s Impact on Product Usage & Business Offerings: As you
might expect, 68% of companies saw usage of their products or service
offerings increase more than expected, with a significant 27% saying it
increased dramatically (50%+ above plan). Those with products in the
market already, either “Just Beginning to Scale,” “Actively Scaling” or
“Mature Offering”, saw the biggest uptake, with 29%, 37% & 25%
respectively, saying that usage increased dramatically. Most companies
(66%) added new products and services during COVID-19. In fact,
Catalyst @ Health 2.0 built an entire version of our SourceDB database
showing all the new COVID-19 products we tracked.
REVENUE: In 2019 a majority of companies surveyed had either no
revenue (33%) or less than $500K (21%) in revenue. But they had high
aspirations, with only 24% of companies at the time of the survey
expecting to be below $500K in revenue by 2021 (this year!). As you might
have guessed, the biggest changes were felt by those who described
themselves as “Just Beginning to Scale” or “Actively Scaling”. Almost all
(87%) of the “Just Beginning” group were at $2m or below in revenue in
2019 (in fact, more than half, 61%, were below $500K), whereas 63%
expected to be above $2m in 2021. Only 14% of the “Actively Scaling”
group were above $30m in 2019 but 47% estimated that they would be
there in 2021.
COVID-19’s Impact on Revenue: We tried to understand the impact of
COVID-19 by asking about how companies’ actual revenue in 2020
compared to plan or expectation. 42% said that they were above
expectation, with 29% saying they were slightly above (15-50% greater)
and 13% saying they were significantly higher (50+%) than plan. Only 5%
(50+%) were significantly below plan. Again, it was the companies who

were “Just Beginning to Scale”, “Actively Scaling”, and “Mature Offering”
who saw the most unexpected upside.
REGULATION & DATA SECURITY: Not unrelated to the fact that our
sponsors at Wipfli provide business process, regulatory advice and data
security certification, we asked a long series of questions about those
issues and other business processes. Perhaps the most interesting result
was that knowledge about applicable regulations was significantly lower
in “Early Stage” companies, with 61% of them either “just getting
educated” or having a “fair to medium understanding”. “Mature”
companies had either in-house staff (42%) or a “strong level of
understanding”.
Certification Demand & Preparedness: Surprisingly, however, client
demand for security certification or documentation did not necessarily
match up with regulatory awareness. Overall, more than 70% of
companies reported being asked about data security. This demand may
come with company establishment and growth in the market, as a much
larger percentage (83%) of “Mature” companies have been on the
receiving end of some level of certification inquiries by clients. It is clear
more needs to be done, however, as client demand does not appear, on a
macro level, to translate into a comparable level of preparedness - only
24% of companies overall had been certified by an outside body like
HITRUST.
BUSINESS OPERATIONS: A large piece of the survey was devoted towards
learning more about business operations and who handles certain
functions. Hiring plans have not changed since the start of COVID-19 for
45% of companies, more so the earlier in the pipeline the company is,
while 30% of companies beefed up hiring plans, but with this trend in the
opposite direction. Operationally, a majority of digital health companies
keep things in-house. This does not necessarily mean that “in-house” is an
exclusionary term - in all areas of operations on the survey, at least 25%
of companies reported out-sourcing or bringing on consultants. The only
piece of business operations in the survey that did not appear to come
from internal sources for most companies was in the management of
internal-facing technology such as CRM or reporting tools, where 88% of
companies reported using external vendors in some capacity.
DEALING WITH THE “NEW NORMAL”: When asked about the actual
mechanics of running their businesses during COVID-19, digital health
companies were very positive. 46% said that the transition to “Work from
home” was smooth sailing, and 25% believe productivity went up, versus
only 12% who felt that it diminished. More importantly, digital health
companies are extremely optimistic about the impact of COVID-19 on their
business. 45% said it would be net positive and 41% believed it would
dramatically improve their prospects. Not one company said that COVID-
19 would overall be a long-term problem for their business.
FUNDING & THE INVESTMENT CLIMATE: Overall 63% of respondents
feel the investment climate has improved compared with before COVID-
19. However, the bigger and later stage the company, the more likely they
are to think the climate has improved. Interestingly, ALL the investors we
asked believed that the investment climate for digital health companies
has improved, and almost all thought their valuations had gone up.

Disclaimer
This document is provided with no warranties whatsoever, including any warranty of
merchantability, non-infringement, fitness for any particular purpose, or any other warranty
with respect to any information, result, proposal, specification or sample contained or
referred to herein. Any liability, including liability for infringement of any proprietary rights,
regarding the use of this document or any information contained herein is disclaimed. No
license, express or implied, by estoppel or otherwise, to any intellectual property rights is
granted by or in connection with this document. This document is subject to change without
notice.
This document reflects only the view of the author(s).
1 We received multiple survey respondents from some companies, but only used one
response per company in the report.
INTRODUCTION
Last year was a remarkable time for digital health. Obviously, it was
unusual and tragic for the world in general as the COVID-19 pandemic
continued to wreak havoc. We mourn those lost, and we praise our front-
line health workers and scientists. But for digital health companies, in
almost no time 2020 changed from fear of a market collapse to what
became a massive funding boom.
But no-one has reported from the ground what this means for digital
health companies, of which there are perhaps 10-15,000 worldwide with
maybe 6-8,000 based in the United States. Despite the headlines, most are
not pulling down $200m funding rounds or SPACing out. So, working with
professional services firm Wipfli, we at Catalyst @ Health 2.0 decided to
find out what digital health companies experienced in this most
extraordinary year.
Between Thanksgiving 2020 and mid-March 2021, we surveyed 334
members of the digital health ecosystem, focusing on leaders and team
members from 1861 private (and a few public) digital health companies.
We asked them about their market, their experience during COVID-19,
and what they thought of the environment. We also asked them about the
mechanics of running their businesses. We also heard from seventeen
investors, and a group of 86 we called “users” (mostly payers, providers,
pharma, non-healthcare tech companies, e-patients & consultants).
The results are pretty interesting.

KEY FINDINGS
DEMOGRAPHICS
Most digital health companies are small startups. Given the ease of
starting a company and the difficulty in selling to larger incumbents or
getting a large number of consumers as users, that is not a surprise. In our
sample, 50% of digital health companies had fewer than 20 employees,
including 21% that had fewer than 5.
While we asked several objective questions about size, revenue & funding,
we also asked companies to self-select as to their “scale”, in a way that
matches our classification of startups.
The five stages are:
Figure 2 The Five-Stage Company Pathway
It is only when companies are “Actively Scaling” that they start to really
grow their employee base, with 44% of companies in this stage having
more than 100 employees. Even so, a substantial portion (27%) of
“Mature” companies still have between 50-99 employees.

CUSTOMERS & PRODUCTS
Most digital health companies are targeting more than one type of
customer. 64% were targeting providers with 58% targeting payers.
Substantial minorities (33% & 35%) were selling to consumers and
employers, respectively.
Figure 4 Answers to the question, “Who are you targeting?” (Multiple answers
allowed)
And, of course, there are several commonalities--of the companies who
said they were targeting consumers, 53% also targeted payers and
providers. Of those targeting employers, 75% also targeted payers.
When looking at the products and service offerings companies are
providing, almost all (89%) were selling software, with over half (57%)
selling services--in fact more than half of those selling software were also
selling services. Additionally, every company making hardware also
makes software.
Figure 5 Answers to the question, “What are you selling?” (Multiple answers
allowed)
COVID-19’s Impact on Product Usage & Business Offerings: But what
about actual usage of these products, by these customers, during COVID-
19? 68% of companies saw usage of their products or service offerings
increase more than expected, with a huge 27% saying it increased
dramatically (50%+ above plan). Those with products in the market
already, either “Just Beginning to Scale,” “Actively Scaling” or “Mature
Offering”, saw the biggest uptake, with 29%, 37% & 25% respectively,
saying that usage increased dramatically.

Figure 6 Answers to the five-choice question, “Since the start of COVID-19,
compared to what you were expecting, has the usage of your products & services:…”
Comparatively, investors and digital health “users” (consultants,
providers, payers, tech, life sciences organizations) felt that usage of
digital health products and services increased in a bigger way. 85% of
investors surveyed believe that usage increased dramatically, and the
other 15% of investors all believed that it increased slightly. No investor
felt it stayed the same or fell in any way. 78% of users felt usage increased,
with 45% believing it increased dramatically. Only 2% felt that usage fell,
and that 2% identified it as falling dramatically.
2 Blue.catalyst.health
Most companies (66%), regardless of size, added new products and
services during COVID-19, although early-stage companies were the most
likely to keep the same product or service offerings, which makes sense
given their focus on their initial offerings at this stage. Interestingly, it is
only in those companies that are Just beginning to scale where we see a
not-insignificant number (8%) of whom completely pivoted the focus of
the company.
Figure 7 Answers to the three-choice question, “Since the start of COVID-19,
compared to what you were planning at the start of 2019, have you:…”
Catalyst @ Health 2.0 built an entire version of our SourceDB database2
showing all the new COVID-19 products we tracked. But it is a reasonable
conclusion that companies with products in the market mostly did better
than companies just coming to market and starting their sales cycles.

REVENUE
We also asked explicitly about revenue--which, not surprisingly, was the
topic with the least number of respondents who answered! Based on the
responses, in 2019 (hereby known as “pre-COVID” and when digital
health uptake was less of a national priority) a majority of companies had
either no revenue (33%) or less than $500K (21%) in revenue. But they
had optimistic outlooks, with only 24% of companies expecting to be
below $500K in revenue by 2021 (this year!) at the time of the survey. In
fact, while only 11% of companies had revenue over $30m in 2019, that
jumps significantly for the 2021 estimates, where 21% intended to be at
that $30m+ level.
As one might have guessed, the biggest changes were experienced by
those who described themselves as “Just Beginning to Scale” or “Actively
Scaling”. Almost all (87%) of the “Just Beginning” group were at $2m or
below in revenue in 2019 (in fact, more than half, 61%, were below
$500K), whereas 63% expected to be above $2m in 2021. Only 14% of the
“Actively Scaling” group were above $30m in 2019, but a significant 47%
think they will be there in 2021.
COVID-19’s Impact on Revenue: We tried to understand the impact of
COVID-19 by asking about how companies’ actual revenue in 2020
compared to plan or expectation. 42% said that they were above
expectation, with 29% saying they were slightly above (15-50% greater
than plan/expectation) and 13% saying they were significantly higher
(50+%) than plan. Only 5% (50+%) were significantly below plan. Given
how optimistic the startup forecasts we see tend to be, this shows that
COVID-19 did boost revenue dramatically, even beyond the optimistic
financial outlook we typically observe in startups.
Legend in center blue box
Figure 8 Revenue changes from 2019 to 2021 for digital health companies in
aggregate and across the five stages. Respondents were asked to select the dollar
range that corresponded best to their actual revenue in 2019, 2020, and estimated
revenue in 2021.

Again, it was the companies who were “Just Beginning to Scale” (who,
paradoxically, also saw the highest percentage of revenue dramatically
below expectations, at 7%), “Actively Scaling”, and “Mature Offering” who
saw the most unexpected upside, at 11%, 17%, and 18%, respectively.
Figure 9 Answers to the five-choice question: “Since the start of COVID-19,
compared to what you were expecting, has your revenue:…”
REGULATION & DATA SECURITY
As this survey was undertaken with our collaborators at Wipfli, who
provide business process, regulatory advice and data security
certification, we asked a long series of questions about those issues and
other business processes. These questions, which ranged from “Who do
you work with to determine your longer-term business strategy?” to
“How does your company manage your product technology development
for your external business and services?” along with questions regarding
compliance, aimed to provide a clearer picture of how digital health
companies operate as they carry out their business objectives.
Regulatory Understanding: Perhaps the most interesting result was that
company knowledge about applicable regulations was not as robust as
one might presume – 33% of companies overall identified themselves as
having no more than a medium level of understanding of regulations.
While only 7% of companies overall identified themselves as “starting to
get educated” about regulations, a much larger 26% of “Early Stage”
companies fell into this category. “Early Stage” companies demonstrated
a significantly lower appreciation for relevant regulations, with 61% of
them either “just getting educated” or having a “fair to medium
understanding”. Companies farther along reflected more focus on
regulations, with “Mature” companies understandably demonstrating the
greatest awareness. 92% of “Mature” companies had either in-house staff
(42%) or a “strong level of understanding”.

Certification Demand & Preparedness: Surprisingly, however, client
demand for security certification or documentation did not necessarily
match up with regulatory awareness. Overall, more than 70% of
companies reported being asked about data security. While, as mentioned
above, 61% of “Early Stage” companies acknowledge having a more
limited understanding of regulations, a similar proportion (57%) of “Early
Stage” companies do say that demand for certification has not yet come
up as they proceed with business.
This demand may come with company establishment and growth in the
market, as a much larger percentage, 83%, of “Mature” companies have
been on the receiving end of some level of certification inquiries by
clients. It is clear more needs to be done, however, as client demand does
not appear, on a macro level, to translate into a comparable level of
preparedness - only 24% of companies overall had been certified by an
outside body like HITRUST.
Figure 10 Answers to the four-choice question: “How aware are you and your organization about international, federal, and state regulations
pertaining to your products/services? (E.g., HIPAA/21st Century Cures Act/FDA Approval)”

BUSINESS OPERATIONS
A large piece of the survey was devoted towards learning more about
business operations and who handles certain functions. As discussed,
companies have been seeing increased usage of their products and
services, jumps in revenue (although maybe not as quite as much as the
uptick in usage), and, for most companies, change in company offerings,
either through completely pivoting the company focus or, for a majority
of companies, the addition of new products or services. Add client (or
potential client) demand for certification and regulatory compliance into
this mix, and it would be easy to assume that most companies would be
undertaking major hiring campaigns. But hiring plans have not changed
since the start of COVID-19 for 45% of companies, more so the earlier in
the pipeline the company is - 63% of “Early Stage” companies kept their
hiring plans the same, almost double the proportion of “Mature”
companies. 30% of companies hired more than planned, but this time
with the trend almost linearly in the opposite direction, such that this time
“Early Stage” companies hiring beyond expectations was half of that of
“Mature” companies.
As we saw in the survey responses, digital health companies appear to like
to do as much as they can themselves, which makes sense given that 80%
of companies had no plans for a sale or merger of their business, so the
personnel make-up of the company is critical. From business strategy to
human resources functions, accounting, and client-facing product
technology development, a majority of companies keep things in-house.
Compliance is handled in-house by most companies as well, with 81% of
respondents stating that there is at least some component of compliance
handled in-house, ranging from 65% of “Early Stage” companies reporting
as such up to 95% of “Actively Scaling” companies. This does not
necessarily mean that “in-house” is an exclusionary term - in all of the
previously listed business functions at least 25% of companies reported
out-sourcing or bringing on consultants.
Figure 11 Answers to the four-choice question: “Since the start of COVID-19, compared to what you were expecting, have you:…”

The only piece of business operations in the survey that did not appear to
come from internal sources for a majority of companies was in the
management of internal-facing technology such as CRM or reporting
tools. Here, a significant 89% of companies worked at least in part with
external vendors, with 72% relying only on vendors for this technology.
This departure from self-created tools for internal-facing tasks is least
apparent in the earliest stage companies, who may still be at that point in
their business where handling such accounting and reporting processes
is still manageable prior to expansion of their company, when operations
become more complex.
DEALING WITH THE “NEW NORMAL”
As COVID-19 hit the United States (and the world) and social isolation
became commonplace, businesses had to scramble to make adjustments
while ensuring the health and safety of their workers. This
understandably could create some challenges and impede business
activities both during the adjustment and even thereafter as conducting
business from home became the norm. That said, when asked about the
actual mechanics of running their businesses during COVID-19, and what
kind of impact this change to working from home had, digital health
companies felt very positively about the shift. 46% said that the transition
to “Work from home” was smooth sailing, and 25% believe productivity
went up, versus only 12% who felt that it diminished.
Figure 13 Answers to the question, “Has the transition to “Work-from-Home”:…”
(Multiple answers allowed)
Figure 12 Answers to the five-choice question “How does your company manage your
internal technology such as CRM, reporting tools NOT shown to outside clients?” No
respondent chose “Other” as their response.

More importantly, digital health companies are very optimistic about the
impact of COVID-19 on their business. 45% said it would be net positive
and 41% believed it would dramatically improve their prospects. Not one
company said that COVID-19 would overall be a long-term problem for
their business.
The contrast here to many other sectors of the economy could not be
starker. This is despite the fact that more companies responded to the
survey saying that their sales cycles increased (46%) rather than
decreased (25%).
Figure 14 Answers to the question “Do you believe that overall COVID-19 will:…” (Multiple answers allowed)

FUNDING & THE INVESTMENT CLIMATE
In a time when there are several $100m fundings announced seemingly
daily, the first thing worth remembering about early-stage companies in
general and digital health in particular is that the venture capital spoils
are not divided evenly. More than 25% of our sample had raised under
$500K and 53% less than $5m.
Figure 15 Answers to the free response question: “How much money have you
raised in total?”
While the mean investor funding amount amongst the survey’s digital
health companies was over $40m, the median was less than $4m. Many
earlier stage companies felt that the typical VC did not have time or
interest in something new or small. Nonetheless, the mood is overall very
positive, with 63% saying the investment climate has improved compared
with before COVID-19. However, the bigger and later stage the company,
the more likely they are to think the climate has improved--those $100m
rounds are in general going to companies already scaling very fast!
Figure 16 Answers to the three-choice question: “Since the start of COVID-19,
compared to what you were experiencing before, has the investment climate for
your organization in general…”

And for what it is worth, ALL the investors we asked thought that the
investment climate for digital health companies has improved, and almost
all thought their valuations had gone up. But, surprisingly, none of those
investors said that the time they needed to make a decision had gone
down--presumably they were all operating at lightning speed already?
(We are not sure every company desperately wanting a VC to answer their
email would agree!)
CONCLUSION
There is no question that on basically any measure, digital health
companies are in much better shape and much more optimistic than they
were pre-COVID-19. Most companies believe that the business and
investment climate is much better than it would otherwise have been, and
that their revenue and their products’ usage is substantially higher than
they expected pre-COVID-19. But there are clearly going to be headwinds;
probably the biggest for most is that sales cycles have actually increased.
While “users” also saw a big trend towards the use of (and, to a lesser
extent, paying for) digital health tools and services, they were not as gung-
ho as were digital health companies or investors, who were even more
optimistic. And for the early-stage companies, the huge funding rounds
(and the even bigger VC fund raises that are going with them) mean that
it can be harder for them to get the relatively small amounts they need to
prove themselves before they are ready to scale.

The Catalyst @ Health 2.0/Wipfli Survey on the State of Digital Health 2021 - White Paper

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The Catalyst @ Health 2.0/Wipfli Survey on the State of Digital Health 2021 - White Paper