Digital health investors don't want your buzzwords
Venture capitalists at Health 2.0 explained what it takes to get noticed.
Every day a cadre of PR pitches are created to hype the latest and greatest digital health companies. Unfortunately, many of them use the same buzzwords, rendering the reader tasked with figuring out what it is the company actually does.
Every nascent healthcare company, for example, suddenly became an artificial intelligence (AI) company. The investor community can always be counted upon to throw a cold splash of reality on fads among the digital health business landscape and provide their insights into where they see the market going. To this end, their comments across panels at Health 2.0 in Santa Clara, California, this week did not disappoint.
Go your own way?
There's been a lot of money coming into the digital health space in the last four to five years (Rock Health has already stated 2017 to a record-shattering year). During the last four years, companies have been building value, Lynne Chou O'Keefe, partner at Kleiner Perkins, stated. She added most companies experience meaningful exits around seven years and expects such exits and IPO creations to occur in the next two to three years.
But it won't be a party for all companies.
The digital health landscape to an investor can look to be a bit homogenous where many companies are chasing the same function. “If you’re an early stage company looking for funding, make sure your deck says you do AI,” Iana Dimkova, director of healthcare investing at GE Ventures said, adding, “It doesn't matter what you do, just make sure it’s on there and it automatically results in a 20% bump in valuation.”
While Dimkova was joking, it's easy to see digital health startups pivoting or chasing buzzwords in hopes to gain funding and footing in the crowded marketplace. Oddly, that chasing can cause companies to become part of the noise rather than cutting through the market.
"One of the challenges that I find in the space is how much copying there is," Lisa Suennen, senior managing director for healthcare investing at GE Ventures, said. When an investor sees many companies that do the same thing, it can be hard to distinguish what they each do. "When you get to the specialized telemedicine [for example] around behavioral or genomics, it's much more interesting because it's solving a different problem," Suennen said.
She noted that 40% of venture capital coming into the digital health space is coming from technology investors, not healthcare investors. To that end, being able to easily pitch to someone that may not have a background in healthcare will be crucial for companies and their messaging.
Reimagining the playing field
Investors stated one of the trends they're looking to is how companies reimagine their playing space. Buying cycles in healthcare are notoriously long and challenging to both vendors and providers. On the provider side, the organization is taking a risk for an untested tool while a vendor needs to create data to divine a scalable ROI to act as selling points to more providers. Because of these difficulties, some investors and companies are trying to reimagine the space instead of trying to sell into it, O'Keefe stated. Examples in the provider space include One Medical and Iora while payers like Bright, Clover Health and Oscar are all trying break down the boundaries of the traditional industry.
“Healthcare...has very fundamental structure problems," Ruchita Sinha, senior director of investments at Sanofi Ventures, stated. "As an entrepreneur you have the freedom to not be bound by those." Sinha also name checked Oscar wading into the provider arena and offered 23andMe's desire to become a pharmaceutical company.
Abhishek Sharma, investor at Nexus Venture Partners, stated he is staying away from b2b startups looking to sell to incumbents and instead looking to new-age companies trying to capture value. “It’s a harder life choice, but a lot of value can be created inside closed loop systems if you become a stakeholder yourself," he said. He echoed Suennen's comments that it can be hard for incumbents to evaluate products because of the sheer volume of companies trying to make plays in same space.
After becoming a new-age provider or payer, it's then up to the company to figure out how to dance among giants. "It's an interesting trend and he'll see how it plays out," O'Keefe said.
Merging b2b and b2c
For companies trying to chalk up a W, organizations should look to employ both business-to-business and business-to-consumer principles.
In the past, b2c was a big play for digital health startups but, with a few exceptions, many have not gained traction in the space. "Unfortunately, a lot of money has been spent and so far there’s not really a business model to emulate,” Dimkova said, adding she does think the consumerization of healthcare will still eventually happen.
To O'Keefe, a lot of healthcare is b2b2c. "You need the enterprise knowledge of cracking the health ecosystem but then you have to understand how to acquire customers, have them on your platform and engage with them," she said.
For those looking to break into the space and who aren't trying to reimagine the playing field, Sinha suggested looking to areas that individuals don't understand. Such areas are "ripe for disruption," she said, giving how drug formularies are negotiated by pharmacy benefit managers as an example.
The good news is, as Bill Ericson, managing partner at Wildcat Venture Partners, noted, there is so much capital on the table. And if funding trends have been any indication, there won't be a shortage of companies trying to enter the space, or investors looking for the next big hit in the healthcare industry.
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