Table 1.

Attributes of a Venture-Capital Driven Investment Bubble.⁴

Bubble attribute	How digital health stacks up	Verdict
Hype supersedes business fundamentals	• Digital health startups must navigate sales, regulations, and scale in a complex industry. Entrepreneurs have over time migrated toward more sustainable, scalable business models; 61% of startups that started B2C switched to B2B or B2B2C • Savvy startups are risking payment on clinical outcomes and pursuing strong validation pathways, matching the growing interest in outcomes-based payments among risk-bearing entities • Only a minority of adults and youth with T1D in the United States achieve ADA goals for HbA1c8,9	Not bubbly
High cash burn rates	• Startups are raising early funding rounds more quickly, driven by a combination of the availability of capital and growth needs within a maturing sector • Since 2011, the time between raising Seed and Series A has been cut in half, while deal sizes across all stages climbed • For many new diabetes technologies, it is necessary to spend heavily early in the development lifecycle in order to receive favorable decisions on regulatory clearance, coding, coverage, and reimbursement10	Moderately bubbly
Unclear exit pathways	• No digital health Initial Public Offerings (IPOs) since 2016; mergers and acquisitions remain a reliable exit strategy but trend is flat • Digital health startups are the most prolific acquirers as some players seek scale through consolidation • At least one diabetes digital health startup, Livongo Health Inc., is preparing for an IPO as soon as the third quarter of 201911	Moderately bubbly
Surge of cash from new investors4 (who might be inclined to sell in a downturn)	• Since 2016, there have been more repeat investors than new investors in digital health, and the spread is growing • Over 40 investors have made 3+ digital health deals per year; sustained, repeated investments from a cohort of experienced investors is suggestive of a rational market • The recent uptick in total investment in digital health is largely driven by a surge in follow-on investments (in which investors contribute new capital to fast-growing, relatively mature startups). By contrast, early-stage investment and the overall number of new companies being formed are relatively stable	Not bubbly
High valuations decoupled from fundamentals	• With bigger, more frequent rounds, valuations are currently high • The digital health industry may be fully valued considering the opportunity to transform a $3.5 trillion market • There are currently seven digital health unicorns (private companies valued at over one billion dollars) and none are primarily focused on diabetes products4	Moderately bubbly
Fraud or misuse of funds	• No signs of extravagance, like dotcom-style holiday parties • Theranos and Outcome Health were notable downfalls, but have been outliers • No fraud at high profile digital diabetes companies has been in the news12	Not bubbly

Abbreviations: ADA, American Diabetes Association; B2B, business-to-business; B2B2C, business-to-business-to-consumer; B2C, business-to-consumer; T1D, type 1 diabetes.