The Longevity

Tip from Health 2.0 VCs: Your Competitors are Using the Same Buzzwords

October 11, 2017 |

This week, HealthcareDive took a close look at some of the advice investors were doling out at the recent Health 2.0 summit in Santa Clara, California. Among the top tips: investors want more than buzzwords.

“If you’re an early stage company looking for funding, make sure your deck says you do AI,” [joked] Iana Dimkova, director of healthcare investing at GE Ventures. “It doesn’t matter what you do,” [she added], “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.

What other insights did they offer? Some focused on finding a problem to solve that is unique—or at least not crowded with startups.

“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.

Others took it a step further, suggesting vendors need to go beyond solving specific problems for incumbent players and instead ‘reimagine the playing field’ of healthcare.

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, [stated Lynne Chou O’Keefe, partner at Kleiner Perkins]. 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.

One investor even went so far as to say he is staying away from investing in b2b companies focused on selling to incumbents.

Abhishek Sharma, investor at Nexus Venture Partners, stated he is…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.

Finally, the investors at Health 2.0 suggested merging whenever possible business-to-business and business-to-consumer strategies.

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, [citing the example of] how drug formularies are negotiated by pharmacy benefit managers… 

What seems clear is that digital health investing—which has already shattered previous records in just 3 quarters of 2017—is likely to remain flush with capital and curiosity.

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