Catching the right wave in digital health

Thank you to LG NOVA and their Healthcare Incubation team for their collaboration on this work!

Navigating the vast, fast-moving waters of digital health is no small feat. Today’s ecosystem is expansive and rapidly evolving, with new innovation areas constantly bubbling up to the surface. But discerning promising currents from passing swells can be challenging amid speculative hype cycles and turbulent market conditions. As the economy contracts and uncertainty persists, it is more important than ever for enterprise leaders to make innovative, calculated bets.

Choosing the right wave—one that’s timely, sizable, and ripe for innovation—requires more than instinct. De-risking decisions and charting resilient paths to growth call for a data-driven approach. The question isn’t whether to innovate—it’s where and when.

A framework for watching and reading the waves

To help enterprise leaders make better decisions in an uncertain market, we created a structured way to cut through noise and identify white spaces for investment. We first organized the digital health landscape into 50 distinct segments across three categories: value proposition, therapeutic area, and target population.¹ This taxonomy laid a foundation for identifying where innovation is both necessary and viable.

We then evaluated the relative attractiveness of each segment by defining metrics across two dimensions: value potential and capturable opportunity.

To assess value potential, or how big a wave is, we looked at each segment’s:

Share of total digital health venture funding
Disease burden (i.e., degree of economic cost)²
Addressable population size³

To evaluate capturable opportunity, or whether a wave is cresting or passing, we looked at each segment’s:

Funding velocity (i.e., recent investment trends)⁴
Funding concentration (i.e., proportion of capital held by mega companies)⁵
Market maturity (i.e., distribution of early- vs. later-stage companies)

This framework helped surface the “Goldilocks” waves of innovation: opportunities that are both big enough and ripe enough (but not too ripe) for new entrants to gain traction. For example, the weight management and obesity segment stood out with high scores in both value potential and capturable opportunity. High disease burden and funding in the obesity market are driving its value potential, and the competitive landscape is in the “goldilocks zone”—a favorable balance of growing, early-stage companies and mega companies, signaling strong market precedent with room for new entrants. In contrast, some value propositions like patient adherence or disease monitoring demonstrated strength on one axis, but not the other (due to lower share of total venture funding and overrepresentation of mega companies, respectively). And some segments, like dermatology, scored lower overall—highlighting where white space might be more niche or less ripe.⁶

To test our framework in the wild, we worked with LG NOVA’s healthcare incubation team to identify where LG should focus resources and efforts as they spin up new digital health businesses.

“Rock Health approached this project with remarkable thoughtfulness and rigor. Their team built a clear, structured framework that helped us cut through complexity and identify where to place our bets in digital health. We really liked the logic and creativity behind their analysis.”
—Michael Kisch, Head of HealthTech Incubation, LG NOVA

Knowing you’re on the right wave

To complement our investment opportunity framework, which helps enterprise leaders prospectively pick market winners, we conducted a separate, retrospective analysis to track the progress of waves already chosen. To do this, we looked at features of the current herd of digital health unicorns. When startups achieve unicorn status,⁷ they tell a story about where the market sees value. This unicorn comparison gave us a method to track current investments’ progress against unicorn trajectories and identify signals that a company may be on its way (or not) to unicorn status.

Using Rock Health’s 15 years of data tracking digital health companies, we compared the features of approximately 70 digital health unicorns.^8,9 We benchmarked their funding trajectories and focus areas to those of non-unicorn venture-backed digital health companies¹⁰ to see what makes unicorns stand out. Here’s some of what we learned:

Unicorns find success early (e.g., Ro), earning nearly twice as much venture funding at year one than the average digital health company. It’s unlikely that a burgeoning unicorn will see slow funding traction in its first year or two
Unicorn revenue multiples more closely mirror that of leading Software as a Service (SaaS) companies than tech-enabled services (e.g., Innovaccer), suggesting that winners are usually more tech than services on that sliding scale
Unicorns begin to separate from the herd at Series C, raising significantly more capital than their peers at this stage and beyond (e.g., Abridge), suggesting that Series C can be an important inflection point where early signs of scalability and market leadership earn investor confidence and fuel sustained growth
Unicorns are often consumer-facing and support care delivery (e.g., Wheel). They may mitigate doctor shortages or combat challenges in care access and treatment plan adherence by directly engaging patients in a clinical capacity
Unicorns tend to be therapeutic area agnostic (e.g., Included Health), likely due to their broader addressable markets

Whereas our investment opportunity framework focused on prospectively picking the right waves (the “what”), our unicorn analysis gave insight into the “how”—specifically, how to know a wave is cresting in time to ride it. These insights helped LG NOVA sharpen its lens on how to support and incubate companies over time.

“The insights Rock Health delivered are already shaping our innovation strategy—they’ve given us a practical toolkit and shared language that we’re using today to guide our business decisions and think more realistically about risk and opportunity.”
—Joshua Di Frances, VP of Incubation, LG

From seeing the tide to riding the wave

Our work guided the LG NOVA executive team through the early phases¹¹ of evaluation and decision-making, and enabled them to home in on promising waves for further assessment. These frameworks will continue to be used as decision-making tools within the LG organization as data-driven models to confidently pick those Goldilocks waves.

Relying on intuition for big innovation bets? You’re not alone. Data can be hard to come by, difficult to interpret, and sometimes, the right data just doesn’t exist.

At Rock Health Advisory, we use our proprietary datasets, custom frameworks, and deep digital health expertise to help leading enterprises move from intuition to insight, and surface real signals from noise. Whether you’re looking to identify winning opportunities or leapfrog ahead of the competition—we’re here to help.

Get in touch with the venture team at Rock Health Capital.

Join us in building a more equitable future at RockHealth.org.

And last but not least, stay plugged into the Rock Health community and all things digital health with the Rock Weekly.

Footnotes

Landscape analysis included 21 value propositions (e.g., care coordination, clinical decision support), 22 therapeutic areas (e.g., obesity, diabetes, mental health), and 7 target populations (e.g., women, underserved). Categories are not mutually exclusive
Disease burden was assessed for therapeutic areas only
Addressable population size was assessed for target populations only
We adjusted for COVID-19 era fluctuations in public and private capital markets in our methodology by calculating a segment’s percentage of total venture funding raised in 2023-2024 and dividing that by the segment’s percentage of total funding raised in 2018-2019
Mega companies are companies with $100M+ in funding—too many mega companies indicates a
more saturated market, while too few indicates either a more nascent/higher-risk segment or less opportunity, spread across fewer companies. Segments that land somewhere between scored more favorably
Positioning of a segment for the purposes of this scoring exercise should not be considered an absolute reflection of investment potential or opportunity in the space. Niche opportunities highly aligned to a company’s portfolio may be strategically attractive
Unicorns are companies with $1B+ valuations
Rock Health’s Venture Funding Database tracks venture funding for U.S.-based digital health startups that have raised >$2M and meet our definition of digital health
We included both privately held and public companies with $1B+ valuations respectively based on latest known estimated valuations or market caps at the time when this analysis was conducted (Nov-Dec 2024). We excluded companies older than 20 years
We compared the features of unicorns to digital health startups overall as well as the analytical cohort of unicorn look-alikes—digital health “stallions,” or companies that have raised almost as much as unicorns on average, but have not yet reached $1B valuation
When making innovation bets, enterprise leaders should also consider strategic alignment to internal assets and priorities, “right to play,” competitive landscape, and market sizing