I’ve been driven steadily nuts by a series of recent articles that are sort of describing what’s happening in health tech or (because the term won’t die) digital health, so I thought it was time for the definitive explanation. Yeah, yeah, humility ain’t my strong suit.
It won’t have escaped your attention that, after five years during which Castlight Health more or less single-handedly killed the IPO market for new health tech companies, suddenly in the middle of July 2019 we have three digital health companies going public. While Livongo, (FD-a THCB sponsor) Phreesia and Health Catalyst are all a little bit different, I’m going to use them to explain what the last decade of health tech evolution has meant.
Don’t get carried away by the precise details of the IPOs. Phressia is already out with a market cap of $845m. Yes, it’s true that none of the three are profitable yet, but they are all showing decent revenue growth at an annual run rate of $100m+ and Livongo in particular has been on a client acquisition and annual triple digit revenue growth tear. It’s also the newest of these companies, founded only in 2014, albeit by buying another company (EosHealth) founded in 2008 that had some of the tech they launched with. Going public doesn’t really mean that the health care market will swoon for them, nor that they are guaranteed to change the world. After all, as I pointed out in my recent somewhat (ok, very) cynical 12 rules for health tech startups, UnitedHealth Group has $250 Billion in revenue and doesn’t seem to be able to change the system. And anyone who remembers the eHealth bust of 2000-2002 knows that just because you get to the IPO, it’s no guarantee of success or even survival.
But just by virtue of making it this far and being around the 1/10th of 1% of health tech startups to make it to IPO, we can call all three a success. But what do they do?
They are all using new technologies to tackle longstanding health care problems.
“Healthcare is a journey for patients. Just helping them with one piece of it — it just doesn’t get the job done…”
That’s Brian Roberts of Venrock talking about how he and Bob Kocher have moved on from investing in one-trick-pony health tech point solutions. What are they favoring now? Well, they’re not alone in seeking out platforms…especially those that solve big work flow, patient journey, or systems issues.
The underlying motivator here is, of course, money. Or rather, as Roberts puts it, the fact that “no one in the healthcare system makes any real money.”
ROI is different in healthcare. And they encourage startups — and those health systems, health plans, and provider groups that buy their solutions — to really consider what that means.
Kocher explains that what’s often overlooked is how quickly relationships turn over in healthcare. Patients can change insurance plans every year, or they may switch doctors or hospitals based on when they can get an appointment. This thwarts development of any real customer loyalty, and worse for startups, creates a situation where they need to prove tangible cost savings or increased revenue in a short 1-2 years.
What’s an entrepreneur or investor to do? Listen in for more ROI talk and advice for pivoting a point solution startup.
Get a glimpse of the future of healthcare by meeting the people who are going to change it. Find more WTF Health interviews here or check out www.wtf.health. Filmed at Health Datapalooza in Washington DC, April 2018.
What do health tech investors think is ‘hot’ these days? Where is the money going? I ran into Marvin Liao, partner at 500 Startups (a VC fund/accelerator program that has made more than 2000 investments in early-stage tech startups over the past eight years) at ICEE Health in Bucharest, Romania, last month and had a chance to ask.
With refreshing candor, Marvin weighs in on whether or not digital therapeutics, mental health, and biotech have room to grow — and if Apple, Google, and Amazon really have the power to change the future of health.
Where is he most bullish? It’s no surprise I ran into him outside the US. He’s got his eyes on bleeding edge innovations coming out of foreign markets…especially Japan. Have a look!
Filmed at ICEE Health in Bucharest, Romania, June 2018. Find more interviews about health & technology at www.wtf.health.
Last year I got in a modest Twitter spat with Anand Sanwal the CEO of investor analytics company CB Insights. Anand writes a very amusing newsletter, has built a wildly successful business tracking venture investing (at $20-50K a client) and has recently taken on $10m in VC himself to build out his business which was already profitable. The spat was because in August 2015 (5 months ago) CB insights said that “Digital Health” investments totalled $3.5 billion in 2014. You can go read the article Stephanie Baum concocted from the Tweetstream but my point was that when CB Insights, a generalist analyst company, said that the investment in digital SMAC health was $3.5bn in 2014 they were wrong because 4 specialists (Health 2.0, Mercom, Rock Health and Startup Health) all said it was over $4.5bn.
What’s a billion between friends? Not much, but what I left unsaid until now is that if they’re 25% off the average in one sector, where are they in the other sectors they cover? But other than a few amused readers of MedCity News no one much cared and the world moved on.
Then everyone stared putting out their Q4 2015 numbers. Amusingly, but probably only to me, both Rock Health & Startup Health put out their Q4 numbers 2 weeks before the quarter/year ended, and missed a bunch of late deals! But by the time the revised numbers came in everyone was again in that middle $4 billion range and there was general agreement that funding was about flat in 2015 compared to 2014–albeit at a high level compared to what the Cinderella sector had been recently.
Health 2.0’s numbers in our report were $4.8 billion for the year, as shown on the left. (You can see more on these and some other data in our Q4 report here. In case you don’t know I co-run Health 2.0 as my day job and yes I own THCB). OK. All so far so ho-hum.
Then as the other numbers started coming out I noticed something a little odd. CB insights came out with its numbers for 2015, but something was different.
You’ll recall that I had poo-poohed their 2014 number shown as $3.477 Bn in their blog post here and displayed in the chart below. These are 2014 numbers shown in a post about investment in 2015, published in August 2015. And that was the number I’d started the original spat about. But when I looked at the post they released in January 2016, not only was the number for 2015 at $5.7 billion (remember Rock Health, Mercom & Health 2.0 all put it in the mid-high $4s) but the 2014 number had somehow climbed from about $3.5 billion to $5.1 billion. Again check the January post and check the chart I’ve lifted from it below. You’d think this was a curious jump and you’d be right. But nowhere in the post does it say why the total for 2014 in August 2015 was so different from the total for 2014 in January 2016.
Of course being the troublemaker I am, I asked about this on Twitter and got a classic no reply from Anand at CB insights.
So then I sent all this info off to Stephanie Baum at Medcity News thinking that she might like to write more about it.