By Michelle Snyder

Last year was a banner year for digital health, as the market saw significant growth in funding, bigger deals and new investors entering the space. So what’s in store for 2013? According to a survey of nearly 140 digital health entrepreneurs and over 50 health care information technology venture investors, conducted by my venture capital firm InterWest Partners, we are in for another exciting ride this year. In the survey, we asked which sectors will see the most love from investors in 2013; which companies (if any) will see a $1 billion valuation; where they are having trouble recruiting; and which digital health entrepreneur would win “Survivor: HCIT Island” The answers? Well, it all depends who you ask.

While both groups agree that big data/analytics will be the biggest area for investment, things quickly diverge from there.  Venture capitalists seem to be looking for investments that may have less perceived risk in areas such as insurance exchange/benefit selection, care coordination and clinical-decision support where the Affordable Care and HITECH Acts are creating markets for more near-term, enterprise-oriented opportunities. Entrepreneurs, on the other hand, seem to be more bullish on the opportunities to disrupt the system through mobile access to telehealth and diagnostic services, recognizing the need to potentially address near-term reimbursement challenges and long sales cycles by going directly to the consumer.

Recruiting is top of mind for both investors and entrepreneurs, which is not surprising given a recent Harvard Business Review article that says top employees are likely to be six times more productive than others. While both groups agree that finding the best engineers/developers remains the top challenge, there was a significant difference in the perceived need for good CEO candidates between investors and entrepreneurs.  It’s not unusual to hear investors lament the fact that there is a relatively small pool of CEOs in the healthcare IT space that have been able to scale a company and understand the complexities of the ecosystem. Sales people were also in high demand among investors, which is not surprising given most investors’ focus on generating near-term revenue and the reality of the healthcare sales cycle (along with multiple decision makers).

And while I continue to be baffled at the lack of elegantly designed products in healthcare, I was encouraged to see the increasing importance placed on user experience and design by entrepreneurs.    The idea of realigning products and services around patients’ needs and talking about the “patient experience” is finally starting to become water-cooler conversation across both the healthcare industry and within government (see the ONC/Veterans Administration challenge to “humanize” health records).  Though a word of caution to entrepreneurs – as we have seen with some recent M&A activity –  you cannot succeed by simply having a beautiful product which does not address a “need to have” business case or meet a core consumer need.

In InterWest’s first survey, we asked entrepreneurs which digital health company would be the next to IPO.   This time we wanted to know which companies could be worth over a billion dollars. There was relative agreement on the top three, with investors citing Castlight and entrepreneurs identifying Practice Fusion as the most likely billion-dollar company (ZocDoc coming in third). Other notable mentions included Airstrip and Teladoc where at least 20 percent of investors thought both companies had a chance to hit $1 billion.  Perhaps the most interesting statistic, however, is that 25 percent of investors didn’t believe any of the companies could reach $1 billion.

It could be that those well-versed in the realities of healthcare IT investing realize how difficult it is to scale quickly, gain dominance and/or navigate the regulatory and reimbursement environment. It might be the realization that most good companies get acquired before they get the chance to reach $1 billion (Humedica being the most recent example). Or it could just be that some of them were shareholders in many of the high-profile, healthcare technology companies of the bubble 1.1 era who promised IPO filings but ended up with Chapter 11 filings.

Last week the 26th season of Survivor, set in Caramoan, debuted. We think the more interesting reality battle is occurring on this side of the Pacific. So we posed the question: Which CEO would win Survivor HCIT Island?   Choosing from among a list of the most influential and/or successful repeat CEOs in the HCIT space, investors said it would be a battle between veterans Jonathan Bush (Athenahealth) and Judy Faulkner (EPIC) with Jonathan winning over the “tribal council.” Entrepreneurs give the victory to Ryan Howard (Practice Fusion) with Jonathan, Judy and Jeff Tangney (Epocrates/Doximity) each battling it out for second place.  Let’s hope this bodes well for more SaaS-y and ecosystem friendly players in the future.

I stopped watching Survivor a few seasons ago, but I’ll be watching these CEOs carefully over the coming years as they battle it out.  My personal hope is that the winners will be those who believe in creating the kind of products and services we all have the right to experience as consumers, patients and healthcare providers. And that they and others will be able to attract the best and brightest talent into the healthcare space to support the transition.

To view entire survey infographic, visit www.interwest.com.

Michelle Snyder is executive in residence at InterWest Partners focusing on the transformative role that mobile, social, and data can play in the healthcare industry.   She also advises early stage digital health companies and leading healthcare accelerator programs.  Most recently, she led user acquisition and monetization efforts from launch to IPO at Epocrates.  You can follow her on Twitter @mnsnyder.