Digital health startups can build here. Scaling is harder

Australia’s digital health sector is producing more ambitious software and connected-care companies, but founders say the local funding stack is still too thin to carry many of them from pilot to scale. ANDHealth chief executive Bronwyn Le Grice has been arguing that regulated healthtech ventures need a longer commercial runway than ordinary software startups, because evidence generation, clinical trials and procurement all sit between the first prototype and the first meaningful cheque.

The warning is now backed by harder numbers. Capital Brief’s reporting found 86% of digital and connected health SMEs rank access to capital as a top-five challenge, up from 60% in 2023; 46% are raising just to survive; and 21% have already cut staff. In ANDHealth’s latest intake update Le Grice said demand for its commercialisation programme had hit a record as founders looked for help navigating a market that still likes digital health in theory more than it likes funding the slower bits of it.

“The unprecedented level of interest in this intake reflects growing concern among digital and connected health founders about access to capital in the sector.”
— Bronwyn Le Grice, ANDHealth

But the analyst view is slightly broader than the insider complaint. What shows up in digital health right now looks like a sharper version of Australia’s wider scale-up problem: plenty of early enthusiasm, not enough patient money once rounds get bigger and timelines get messier. Startup Daily recently argued that only 34% of venture capital flowing into Australian startups comes from domestic investors. For a regulated health company, that missing local capital base matters earlier than it does for a marketing SaaS tool or a consumer subscription app, because most companies cannot book much revenue until trials, evidence and buyer sign-off are done.

That is why the offshore drift described by founders looks rational rather than disloyal. If the domestic market rewards speed, lighter regulation and fast feedback loops, the companies with the longest path to proof will keep looking to overseas capital, customers and acquirers long before they would prefer to.

The gap sits between proof and payment

The hardest stretch is not idea formation. It is the bridge between proof-of-concept and predictable revenue. The MTAA’s Digital Health Solution Funding Report and ANDHealth’s response to the federal R&D roadmap both point to the same structural weakness: Australian startups can find seed support and pilot interest, yet still struggle to finance the clinical evidence, procurement work and reimbursement case that turn a promising health product into a repeatable business.

That makes digital health look awkward inside the usual venture timetable. As Capital Brief noted, many of these companies have to finish clinical trials before they can sell a single product. In most software sectors, founders can ship early, adjust quickly and pull forward revenue. Here, the expensive work often comes before the first scaled sale. Investors do not just need conviction on product-market fit; they need patience on evidence, regulation and hospital buying cycles as well.

The policy view reaches a similar conclusion from the other end. Support for R&D matters, but reimbursement and procurement often matter more because they create visible demand. When the Commonwealth’s Medical Research Future Fund backed an accelerator programme for digital health innovation, Le Grice framed the point in commercial rather than scientific terms:

“This helps companies to grow in Australia instead of moving offshore or closing due to limited capital.”
— Bronwyn Le Grice, Department of Health and Aged Care programme statement

That quote reads like an answer to one of the central policy questions hanging over the sector. The reform most likely to lower the cost of scaling a regulated healthtech company is not another small seed pool. It is any mechanism that shortens the time between evidence and payment, whether that comes through procurement pathways, reimbursement settings or larger domestic cheques that recognise those delays.

The sector is splitting into two markets

The squeeze also explains why “digital health” is now too broad a label for investors and founders alike. One lane includes consumer-facing businesses and software tools that can reach revenue quickly, build brand recognition fast and attract buyers willing to underwrite growth. Capital Brief’s piece points to Eucalyptus as the sort of local scale-up that could move quickly enough to prove demand and eventually exit to a US buyer.

The other lane is slower and more capital intensive. These startups may be building higher-defensibility products, but they have to clear more gates before the market sees traction. Health Services Daily’s analysis says investors are backing fewer, bigger players and demanding clearer evidence. That may be sensible capital discipline. It also means founders are being asked to show a level of proof that often requires the very money they are struggling to raise.

From the founder’s side, the commercial calculation is harsh but straightforward. If Australian investors prefer the businesses that can monetise before regulation slows them down, then regulated digital health companies will keep adapting around that preference. Some will pursue offshore rounds. Some will build for foreign buyers earlier. Some will incorporate elsewhere. The market is not voting against health innovation as such. It is voting for shorter routes to revenue.

That helps explain why the user-affected perspective in this story is not really patients first; it is founders forced to redesign company strategy around financing friction. Product choices, go-to-market sequencing and even geography start to bend around the capital stack. By the time policymakers notice “offshore” as an outcome, the causal decisions were often made much earlier, at the point where a company realised Australian money would not comfortably fund the gap between trial results and commercial scale.

Policy will matter only if it changes the scale-up stack

Canberra’s recent innovation debate suggests the problem is at least being named more clearly. InnovationAus has argued that Budget 2026 included measures aimed at improving R&D investment and venture settings, while Guardian Australia reported independent senator David Pocock warning that weak tax settings could still push tech investment offshore. Those are not health-only complaints. They are ecosystem complaints, and digital health is where the bill is arriving earliest.

The risk for government is assuming that better rhetoric around innovation solves a financing problem that founders feel in cash terms. Startup Daily’s reporting on the pause to a major grant programme underlined how fragile support can look from the company side, even while ministers promote broader startup reforms. Grants help. Reviews help. So do roadmap documents. None of them replace a domestic market that is willing to fund a slower, regulated route to revenue.

Australia’s digital health sector is still growing. ANDHealth says the category has been expanding at 22%, well above pharmaceuticals and medical devices. That is the paradox. The country can produce the companies, the clinicians and the technical ambition. What it still struggles to produce is a capital base, and a payment pathway, large enough to keep more of those companies here once they start to matter.

If that does not change, the offshore turn will keep looking like the logical next step. Australia will continue to do the earliest, riskiest work of building digital health companies, then watch more of the scale, ownership and exit value accrue elsewhere.