Viewpoint: The 'unicorn' test doesn't work for digital health startups

Silicon Valley shouldn't measure the success of digital health startups by the same metrics used to determine the success of other tech companies, according to a CNBC writer Christina Farr.

Analysts often consider digital health an "over-hyped and under-performing" field, according to Ms. Farr. A recent Forbes op-ed, for example, claimed "digital health startups have failed thus far to build multibillion-dollar businesses," noting "not one digital health startup has attained unicorn status."

In Silicon Valley, "unicorn status" refers to startups valued at more than $1 billion. While there are, in fact, a few digital health "unicorns" — 23andMe is currently valued at $1.1 billion — Ms. Farr emphasized a larger problem with the litmus test: "valuation is not how digital health companies should be judged."

Digital health startups face a separate set of challenges than their other tech counterparts, such as a focus on selling to insurers or employers rather than to consumers. Landing a significant contract with an insurer requires a startup to validate its product, which takes additional time and investment.

"We need to be looking at validation, rather than valuation," Tom Cassels, executive director at The Advisory Board, told Ms. Farr. Mr. Cassels suggested that rather than judging digital health startups on whether they've attained "unicorn status," analysts should consider how many health providers recommend the tool, how many insurers pay for it and how many patients use it, among other criteria.

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