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Practice Fusion, Castlight or ZocDoc will be the next digital health IPO. That’s according to a survey of over 100 innovative digital health entrepreneurs, conducted by my firm, InterWest Partners.

Nearly one third of respondents said Practice Fusion was most likely to be the next digital health IPO with approximately 20% of entrepreneurs voting for Castlight and ZocDoc, respectively.    Among the trio, all three have been impressive generating media coverage and raising money (collectively raising over $320m in the last 2 years alone with valuations ranging from $450m to upwards of three quarters of a billion dollars), in addition to having some of the most visionary leaders in the space.

Contrary to popular belief that digital health is primarily about the next iPhone app for weight loss, sleep or exercise, it was interesting to note that all of the leading “IPO” candidates in our survey have B2B models.  This is consistent with an insightful RockHealth report ( which found that nearly 80% of digital health companies have B2B models.   Future growth in this category is likely to continue as the leading healthcare accelerators such as RockHealth, BluePrint Health and Healthbox are all seeing more applications from B2B companies.

The responses to the IPO question reflect an interesting industry trend.  Though often classified as “B2B”, many of the leading digital health companies are really B2B2C – meaning that without the C there is no B2B.   Pricing transparency tools (Castlight), scheduling platforms (ZocDoc), employer based wellness programs, medication adherence solutions – they all must find a way to engage the end user or they won’t be purchased by the employer, physician, healthplan, hospital, or pharma company.    And though it’s impossible these days to sit through a day of pitches without hearing the phrase “consumer engagement” twenty times, I’m excited that people are starting to ask more of the right questions.  Why will someone want to use this?  Does it really solve a true need?  Is the product easy to use, intuitive, and fun?

In our survey, we also asked the entrepreneurs: “Besides your own, which company do you wish you had founded?” Given the IPO question responses, it was not surprising to see ZocDoc listed most often – with Airstrip and Epic tied for second.  I did find it somewhat ironic to see Epic high on the list as it was also a popular answer to another question: “Which of the following is the biggest challenge to innovation in healthcare?” Perhaps respondents who wish they had founded Epic had seen the recent KLAS data showing the company continuing to dominate the market?  Or they have firsthand experience seeing the difficulties in trying to integrate into a closed system?   Unfortunately for many of my clinician friends, Epic seems to be one of the few B2B companies that has found a way to succeed in spite of not providing a good “C” experience to the end user.

My final word to digital health entrepreneurs?  It doesn’t really matter what combination of Bs and Cs you use to characterize your business as long as what you offer meets a pressing, not just perceived, need.   While B2B can be a challenging space with long sales cycles and the need for systems integration, you will find deeper pockets and a significantly higher customer lifetime value.   The key will be figuring out how to survive in “pilotitis” as many of the employers, healthplans and providers want to see tangible, near term results (ROI by year 2) before large scale deployment of innovative solutions.  On the other hand, my eleven plus years building the network at Epocrates taught me that if you can create a large, loyal network through offering an easy to use, intuitive product that meets a core need, I have no doubt you will be find someone to pay you.

To view the survey results, visit www.interwest.com/news.

Michelle Snyder is an Executive in Residence at InterWest Partners as well as a mentor and advisor to several healthcare incubator programs and early stage healthcare information technology companies.  She led marketing efforts from launch to IPO at Epocrates and was head of the subscriber business.

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14 Responses for “The Next Digital Health IPO?”

  1. dirkd says:

    given the buzz around the exchanges and consumerization, guessing castlight will do the best of this bunch …

  2. ZachDaddy says:

    IPO candidates?! These three companies have collectively raised $320M with each valued by the VCs at 50-70 times revenue. Talk about a bubble!

    If these companies go through the IPO process, public market investors should run for the hills.

    All three companies have very shaky value propositions:
    - PracticeFusion: 90% of doctors who use this free software aren’t even bothering to qualify for MU. This “free” software is probably the most costly decision a doctor will ever make. It will kill her productivity.
    - ZocDoc: Huge churn issue. Value prop is questionable. They haven’t proven their ROI.
    - Castlight: expensive to employers, unproven, and CL has stupidly made enemies with the payers.

  3. doc1 says:

    Makes me wonder who these ’100 digital health entrepreneurs’ were that were surveyed. Although it is amazing how much supposedly smart money (Peter Thiel, etc) has been dumped into companies with questionable value and dubious customer base.

    Too bad this isn’t always figured out before all the money gets put in and people walk away with their millions, even if their company disappears shortly after due to the fundamental lack of value…

    The investment of this level of money also perpetuates the cycle, discouraging some of the real progress that could be made and encouraging some of these companies to enter areas that are serving their personal profit rather than any greater good.

  4. John Irvine says:

    @doc1

    Note that “next IPO” does not necessarily translate into “next great company” – a distinction that said digital health entrepreneurs are well aware of …

    For the record, I’ve heard some nice things said about both ZocDoc and Doximity

    / j

  5. Boone1 says:

    John Irvine – you are right. IPO does not equal “great investment”. (Just take a a look at ZNGA and GRPN.)

    However, it is offensive when the VCs value a companies at 100X revenue and then try to push this off into the public markets. (Look at FaceBook’s IPO.)

    ZocDoc, PracticeFusion, CastLight, Doximity and Humedica have all blown through so much cash and (currently) have such little revenue to show for it. If the world was just, they’d stay private (to shield public investors from these crappy business models). However, I suspect the VCs will get tired of having them burn through their own cash so they’ll put (more) lipstick on these pigs and try to push them into an IPO.

  6. Lisa Suennen says:

    Interesting companies on the list to be sure, maybe even a few great ones, but I am much more interested in knowing when they will be cash flow positive and profitable on a sustained basis so they can be measured by the kinds of value-based metrics on which the market actually values companies. Thanks for the article Michelle.

  7. Thanks for the great post Michelle; no doubt the three potential digital health IPO companies highlighted are among those that have received the most significant VC investment, and with which are associated the most extravagant expectations.

    In my mind, the most important question to understand is how the company plans to use the money (and “enabling VCs to garner a return,” while like a major driver, obviously isn’t the answer we’re looking for here). There needs to be a growth story, some reason to believe that the additional resources make sense, are essential, and will be wisely and effectively used.

    As much as I appreciate the skepticism apparent in some of the comments above, I would much prefer to root for their success than enjoy the schadenfreude of a flop. I am struck by the scope of opportunities within digital health, and dumbfounded by the amount of money still sitting on the sidelines. A validating event such as a successful IPO could open the floodgates, and enable digital health to receive the resources it requires and, I’d say, deserves.

    Finally, I appreciate that some will say the limiting factor right now is the need for good ideas not more money, I suspect that if digital health had anything near the froth of consumer or SoLoMo or whatever the flavor of the day is, we’d be amazed by the additional talent that would stream in, and the quality of the companies that would grow out.

  8. Jake Malloy says:

    1. The gap between “digital health” and traditional health care – aka the system we have today is so large it is hard to wrap your mind around it. Most providers hate / do not use their EMR let alone a free one – or even a scheduling platform (ubiquitous) for that matter. Right now the impact of digital health on health care is like a single rain drop falling on a beach.

    2. Can someone please give a sense of revenue for these firms? Do they even make money (aka profit)?

    3. As of 2012 the only pure “digital health” company I know to have a successful IPO is WebMD – plus they actually have real earnings, despite their steady downfall.

    FYI – Everyday Health tried to IPO once and likely will again soon – they have nearly $150M in annual revenue and yet didnt even make the list. How come?

  9. The interesting thing to me is the comments, as we’ve taken the report far out of context. While I agree (as I normall do) with Lisa, that there’s different information that may be more interesting, I think Interwest was very transparent about the process and it’s valuable as-is.

    It’s the feedback of 100 Health Tech entrepreneurs. That’s tremendously interesting. It doesn’t tell us who the next great company (or -ies) is going to be, but tells us who the community is watching and emulating (if you allow me to jump to that conclusion – it’s not a direct line, I know). Michelle raises all the right followup questions about “why is this so?”, which are also interesting and should have followup. We’re at the nacent stages of an industry, and understanding it’s perception and how it’s being shaped is critical to forming it’s growth.

    Let’s put it in perspective in terms of the growth of the internet age – if you ran a survey like this anytime between 1998 and 2004 and said “which computer company do you want to be, SUN or Apple”, Sun would have CRUSHED it, probably 10-to-1. Cisco, 3Com (remember them?), EDS (remember them?) and a dozen others would have been listed before Apple, if it even makes the list. We know how that story ends up.

    We’ve probably not seen the innovation that cracks this market, but it will come.

    Thanks for doing this, and publishing it, Michelle.

  10. Matthew Holt says:

    For sure in the post Zynga/Facebook IPO world none of these companies are going to “get out” without showing strong revenue growth and profitability. But if you look at the categories of the top 3–small physician practice automation, employee choice support, patient physician choice–there is a TON of waste there, that someone will capitalize on.

  11. Agree with most – stay private until you figure things out a bit..

    I think eClinicalWorks take all here – great product, support, adoption with real paying customers, and from what I can see they spend their money wisely..

    Credit though for the folks who started these companies listed – they have executed very well and most not the $$ or IPO.

    Peter (MRImatch.com)

  12. Rahul says:

    I think ZocDoc has lot of potential as it solves really a basic problem to find doctors according to specialty, location & insurance.

  13. Rae says:

    As someone who has utilized the Digital Health industry for personal use, I do not feel that a ZocDoc will be as profitable as predicted. At first yes, people will find it helpful, but then what happens once that doctor is found? I do not feel there is a need for the site any longer.

    There has been much buzz around this industry, which cemented my decided to sign up for one. Unlike Teladoc, the company I signed with offered their services direct to consumers from their website. Which for me was very beneficial because at the time I was on the other side of the country and had left my prescription at home.

    Companies that give you access to doctors no matter where you are, is far more beneficial than being able to search for a doctor. I would highly suggest them, and I feel like this type of company will be way more successful than most listed here.

    To check out what I mean visit them yourselves, its called Ensurity Group.

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