Friday, September 26, 2014
Venture capital in healthcare is flowing, but how long will it last?
Despite the lingering slow recovery of the economy one sector that is booming is in health care financing and funding of health information technology, ranging from electronic data storage, evolutionary development of current technology which includes, EHR HIX, telehealth, health information exchanges, and mobile health apps.
Much of the financing of these are not through conventional funding, but depends upon venture capital and startups from young entrepeneurs just entering the work-force. Some are triggered by well funded, successful companies such as Google, Microsoft, and Apple. Apple and Google have recently entered the health space in a more visible manner. Both Apple and Google have already developed many moble health apps, now both companies are launching a more visible presence as Google Health, and Apple's Healthkit.With so much venture capital being foisted onto the digital health space, it’s beginning to beg the question: how long will this last, can it sustain itself, and what’s an entrepreneur to do? And, what are the implications for emerging companies versus traditional healthcare companies and systems?
Those were just a few of the burning questions discussed at Health 2.0‘s Pre, Post, M&A IPO panel held in Santa Clara.
"In the current landscape, larger-than-average sums of seed and early series funding is available to startups across a wide spectrum within the healthcare space. While that may seem like an obvious benefit, entrepreneurs need to be mindful of what’s reasonable and what’s actually needed, so as not to over-promise with a big initial raise and under deliver with a sub-par series b or c.
“You need to be careful to not overreach on your first round,” said Johh de Souza of MedHelp. “It can be very hard then on the second round. It matters on who the investor is, too.”
Frank Williams, of Evolent, agreed: “ You can overreach and then under deliver, and that creates a lot of issues.”
Sage advice, to be sure, but the entrepreneur should also capitalize on the current market conditions, and shouldn’t necessarily be faulted for the seeming glut of capital being heaped upon healthcare startups, Glen Tullman of 7wire Ventures cordially countered.
“I don’t think you can blame, nor should the entrepreneur be conservative, in terms of how big the raise is,” he said. “It doesn’t matter what you raised at a valuation – either you’re performing or you’re not.”
The venture capital funds are increasingly shifting away from life sciences and biotech and toward the digital health realm, with investors realizing that much less capital is needed to get off the ground for the latter while a return is still enticing, said Milena Adamain of Azimuth Partners.
To that end, on the M&A side, much of it’s a seller’s market, certainly as it relates to digital health, Williams said.
“It’s really hard to buy thinks now,” he said. “Everything is really expensive because of the competition.”
But the overall M&A landscape of healthcare in general will continue to be much more varied, with a good deal of late-comers merging as a means of survival. Yet at the same time, the different types of buyers, including nontraditional players like big consumer companies, bodes well for activity.
“As far as M&A, it looks incredibly attractive because of a broad base of buyers that you’ve never had,” Adamain said.
On the IPO side, everyone still looks to Castlight as what might be, but it’s still too soon to say whether long-term stability can be achieved, the panel said. Although at the moment, being a billion dollar company certainly appears to be working in Castlight’s favor.
“I would say the jury is still out,” Williams said. “Right now it’s a massive success. The question is do they continue to grow.”
So what does that mean for companies pondering the IPO? It’s hard to say exactly, but Tullman, of 7wire Ventures, said one gauge is to see how feasible it is for investors to sell within a year and what sort of return they can get.
All told, while it’s speculative to insist a bubble will burst around the available capital for digital health, and tech in general, the healthcare space is likely big enough to sustain a significant share of investor interest."
“Everyone is looking at something that is a fifth of the economy and so there’s a lot of strategic thinking to get a piece of that,” Williams said.
attributions: Medcity News, Dan Verel, Marc O'Connor