Did VC Bros Destroy Digital Health?
The latest episode of the Digital Health Inside Out podcast is now live!
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In the latest episode of Digital Health Inside Out, we passionately explore the big question: “Did VC Bros Destroy Digital Health?” with an all-star panel:
Alex Koshykov – Co-host, CEO at YODD, and COO at BeKey
- – Co-host, Founder of WellAI, Creator of Digital Health Uncut Substack
- – General Partner at Creative Ventures
Matthew Holt – Founder of The Health Care Blog
Here are the most headline-worthy quotes from this hour-long podcast. Enjoy!
Moderator (Alex Koshykov)
On the goal of the show: “The goal of the show is to choose a specific topic, obviously related to digital health, and find the best experts to talk about it, and hopefully to uncover it from different angles and perspectives.”
On digital health venture funding numbers: “Total venture funding in digital health was $14.3B in 2020, peaked to $29.2B in 2021, then declined to $15.7B in 2022, $10.8B in 2023, and we’re almost at that number in 2024. It’s a little smaller at $10.1B, but I do hear a lot of optimism regarding 2025.”
Sergei Polevikov
On VC-backed companies losing money: “If you look at VCs in digital health, they’ve been losing money left and right, and the real innovators have been on the sidelines.”
On concentration of capital: “We have a concentration of capital in a few hands in digital health. Unfortunately, people who control the money have no clue how to pick winners.”
On bootstrapped vs. VC-backed outcomes: “I looked at publicly traded companies. I identified 132. If you separate them into VC-backed and bootstrapped, you see two different stories. VC-backed firms lost about $70B in earnings over the last five years, while bootstrapped companies generated profit or broke even.”
On the need for redemption in healthcare: “In my personal journey, I’m on a road to redemption. That’s part of the reason I got involved in healthcare several years ago. I just want to encourage everybody to involve more people in digital health, AI, and healthcare. There are a lot of problems to be solved.”
On VC valuations: “Right now, with the latest valuation, do you know what the multiple is on Hippocratic AI’ revenue? It’s exactly 200 right now. They basically wake up and say, ‘You know what, how are we going to value it?’ Because in private markets, they can do whatever the hell they want.”
The Neiman Marcus sale analogy for inflated private market valuations and how VCs strategically time their exits: “There’s a little bit of a Neiman Marcus sale effect going on in venture capital. You walk into Neiman Marcus and see an evening gown marked 80% off. It was $10,000, now it’s $2,000. That sounds like a deal—until you realize it was never worth $10,000 in the first place. The same thing happens in private market valuations. VCs slap on these sky-high numbers—$1.6 billion for a company with almost no revenue—knowing full well that’s not the real value. They inflate the price, make it look like a premium product, and then even if they have to slash it by 80% in a down round or secondary sale, they still walk away with a profit. But the public markets don’t play that game. When a company like that finally faces real price discovery in the open market, it gets shredded. That’s why so many of these digital health unicorns avoid IPOs for as long as possible—they know they won’t survive the reality check.”
James Wang
On the digital health funding surge and crash: “We had that chart of total funding ramping and then crashing. That actually parallels most startups, where you get a hype period, and then money is pulled back when macro factors change.”
On the reality of selling to hospitals: “Your sell is basically, ‘We want you to do this thing in terms of digital health, but you won’t make any more money from it.’ That is always a far harder pitch when you have a system that pays you per procedure.”
On advice for founders seeking VC: “Money doesn’t usually solve fundamental problems. Ultimately, what you need is the business to work. If you do need the money and know exactly where you’ll put it, that’s the right time to raise. Otherwise, it can be disastrous.”
On lower interest rates and increased VC activity: “The reason VC got so big was because interest rates were so low. If you have pensions who promised a certain return, they can’t just tell the pensioners, ‘Sorry, it’s zero now.’ They had to go further out on the risk curve.”
On AI making startups cheaper to build: “People keep saying how AI will let two guys in a garage build a unicorn. It’s similar to when AWS came on the scene. It does help you build easier, but you eventually run into the same reality. You have to market and sell, and that usually costs money.”
Matthew Holt
On the system not being designed for digital health: “We thought 30 years ago we would have a bunch of competing Kaiser Permanentes with capitated risk, wanting to keep people healthy. That’s not what happened. You’re not really getting a market that wants these digital health companies.”
On hospital incentives: “When the pandemic happened, these big hospital systems didn’t say, ‘Let’s switch to a global budget and focus on care management.’ They went to the government and put their hands out. As soon as they could, they got right back to filling up those operating rooms with elective surgeries.”
On hype and bubble valuations: “We had a moment in time when the market was flooded with cash in mid-2020 through to 2022. For digital health, companies were losing a ton of money, yet being taken public for 20 times revenue, even if they had no real earnings.”
On how many VCs approach health tech investing: “I love to say that the best VC investments are the ones where the investors can take out their money, leave a bit in, and the company grows on forever. But in the late 90s and again in the last decade, it’s become, ‘Can we flip this company losing a ton of money on the market for 10 times revenue and hope it rescues itself?’”
On building a more realistic company: “My advice is to figure out if what you’re building is really a business that people want, as quickly as possible. If no one cares, that’s the market telling you something.”
On why digital health startups struggle in the existing system: “Many startups were created to save money for the system, but “the big health systems don’t give a rat’s ass about saving money.” Their entire business model is built on volume—more procedures, more admissions, more billing. They make their money by filling up their ORs and maximizing reimbursement, not by reducing costs. When you go to a health system with a pitch that says, ‘We can help you save money with better care management or remote monitoring,’ they nod politely, maybe run a pilot, but in the end, they aren’t going to roll it out at scale unless it helps them bill more. That’s why so many promising digital health companies, which theoretically should improve efficiency and lower costs, struggle to gain traction in the real world.”
Key Themes Across the Discussion
Misaligned Incentives in Healthcare: Many digital health products focus on cost savings or improved care management, but a fee-for-service system rewards more procedures and billing, not reducing costs.
Challenges with VC in Health: The panel underscores how many large funds chase hype, do limited due diligence, and push valuations that can’t be sustained.
Focus on Profitability: There are success stories of startups that minimized external funding, prioritized profitability, and ended up more resilient.
High Valuations vs. Real Revenue: The group calls out multiple examples of digital health companies with astronomical private valuations that may not translate to public market success.
Advice to Founders: Building a digital health company is as much about navigating the messy healthcare system as it is about building a great product. Don’t just grab every VC dollar. Know how you’ll turn each raise into tangible value (revenue, product milestones, profitability).
Announcement. On Monday, February 17, 2025, I’m finally releasing Part 1 of my exposé on Hippocratic AI and its supreme leader, Munjal Shah—along with the first-ever investigation into the American healthcare VC mafia, ruled by its undisputed godfather, Hemant Taneja. This one’s going to be extra spicy. 🌶️
https://youtube.com/shorts/uzofdXEnRKw?si=U59e9R7-xaoodzxY
Hope I don’t get whacked by Monday. 🤞
👉👉👉👉👉 Hi! My name is Sergei Polevikov. I’m an AI researcher and a healthcare AI startup founder. In my newsletter ‘AI Health Uncut,’ I combine my knowledge of AI models with my unique skills in analyzing the financial health of digital health companies. Why “Uncut”? Because I never sugarcoat or filter the hard truth. I don’t play games, I don’t work for anyone, and therefore, with your support, I produce the most original, the most unbiased, the most unapologetic research in AI, innovation, and healthcare. Thank you for your support of my work. You’re part of a vibrant community of healthcare AI enthusiasts! Your engagement matters. 🙏🙏🙏🙏🙏
Looking forward for the monday post
You nailed it in your analysis - it’s the complexity of how health care is reimbursed and incentives - misalignment exists in what “ should be whole health care “ vs what gets paid “ sick care “
I heard dr Eric Topol, who wrote Deep Medicine, quoting another doctor who said AI won’t replace doctors but doctors who use AI will replace those those who don’t use AI.
Eventually that may be true.