What health tech innovations will drive growth?

Posted by | July 12, 2012

In the second quarter of 2012, the dollar value of venture capital deals was up, but the number of funds was down, according to data from NVCA and Thompson Reuters. A total of 38 U.S. venture capital funds – the lowest since 2009 — raised $5.9 billion in the second quarter, a 22 percent decline in the number of funds and a 12 percent increase in capital raised compared to the first quarter of 2012.

These numbers point to broader changes in venture capital, some of which are driven by changes in healthcare IT. Some of these changes were on stage at MedCity News’ CONVERGE summit, where I moderated the “Investor panel: Convergence Worth Investing In.” CONVERGE brought together a number of diverse groups for a discussion about the future of health tech as well as the role of VCs and companies like Safeguard in that future.

VCs have found that information technology, once a major driver in healthcare, has lost its allure as the key to decreasing healthcare costs. Half of the companies in healthcare raising capital no longer rely primarily on IT for their solutions. This is forcing VCs to judge the merits of these businesses by different criteria, like their idea or their team. What makes a startup a good candidate to be funded is changing; companies need to provide products or services that solve real problems today.

Many startups today don’t need significant capital until later in their development. Healthcare VCs have responded by taking a page out of the tech playbook and building incubators, such as the New York Digital Health Accelerator, where start-ups can nest until they hit the point where they need a VC-sized capital deployment to take their business to the next level.

Despite these new challenges, there is still a huge demand for new products and services that can improve healthcare. Here are three of the biggest ideas that captivated CONVERGE:

  1. Providing a complete continuum of care. Medtronic, for example, helps diagnose, prevent, and monitor chronic conditions. They’re upstream from the diagnosis, but downstream from the outcomes. Technology companies too will soon have to support the entire continuum. StartUp Health is even trying to push companies into the complete continuum, providing entrepreneurs access to a community.
  2. Telemedicine. This is an area that can streamline the healthcare system and will continue to build. For instance, the Children’s Hospital of Boston is trying three telemedicine innovations.  These include a video-conferencing robot to monitor released patients, virtual consultations, and a TeleConnect program that creates direct lines of communication between emergency rooms at community hospitals and doctors from the Children’s Hospital.
  3. Eliminating waste in the healthcare system. Dr. David Nash, dean of the Jefferson School of Population Health at Thomas Jefferson University Medical College, pointed out that healthcare could achieve major savings just getting rid of waste, “including medical error, inappropriate admissions, inappropriate readmissions, [and] inappropriate testing.” Streamlining the system, he said, will “save a lot of money, … save a lot of lives, and … improve the outcome and the quality of the care we deliver.”

In this new environment of more immediate market feedback, expect to see more companies fail sooner. At the same time, some companies may succeed faster. This will ultimately be better for VCs. Risk will be smaller and spread out over more opportunities, so VCs could see better returns over a shorter investment horizon.

 

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