Here at THCB we really can’t think of many lectures we’d rather sit in on than Peter Thiel’s Stanford course on entrepreneurship. And we can’t think of a better guest to catch than Netscape co-founder Marc Andreeson. In this talk, Andreeson talks about how healthcare IT is changing in the Facebook and Big Data Era era, the privacy issue and how the cloud may or not be eating software.
Is Software Eating the World?
Marc Andreessen’s most famous thesis is that software is eating the world. Certainly there are a number of sectors that have already been eaten. Telephone directories, journalism, and accounting brokerages are a few examples. Arguably music has been eaten too, now that distribution has largely gone online. Industry players don’t always see it coming or admit it when it arrives. The New York Times declared in 2002 that the Internet was over and, that distraction aside, we could all go back to enjoying newspapers. The record industry cheered when it took down Napster. Those celebrations were premature.
If it’s true that software is eating the world, the obvious question is what else is getting or will soon get eaten? There are a few compelling candidates. Healthcare has a lot going on. There have been dramatic improvements in EMR technology, healthcare analytics, and overall transparency. But there are lots of regulatory issues and bureaucracy to cut through.
Education is another sector that software might consume. People are trying all sorts of ways to computerize and automate learning processes. Then there’s the labor sector, where startups like Uber and Taskrabbit are circumventing the traditional, regulated models. Another promising sector is law. Computers may well end up replacing a lot of legal services currently provided by humans. There’s a sense in which things remain inefficient because people—very oddly—trust lawyers more than computers.
It’s hard to say when these sectors will get eaten. Suffice it to say that people should not bet against computers in these spheres. It may not be the best idea to go be the kind of doctor or lawyer that technology might render obsolete.
There is a corner of the health care industry where rancor is rare, the chance to banish illness beckons just a few mouse clicks away and talk revolves around venture deals, not voluminous budget deficits.
Welcome to the realm of Internet-enabled health apps. Politicians and profit-seeking entrepreneurs alike enthuse about the benefits of “liberating data” – the catch-phrase of U.S. Chief Technology Officer Todd Park – to enable it to move from government databases to consumer-friendly uses. The potential for better information to promote better care is clear. The question that remains unanswered, however, is what role these consumer applications can play in prompting fundamental health system change.
Michael W. Painter, a physician, attorney and senior program officer at the Robert Wood Johnson Foundation, is optimistic. “We think that by harnessing this data and getting it into the hands of developers, entrepreneurs, established businesses, consumers and academia, we will unleash tremendous creativity,” Painter said. “The result will be improved and more cost efficient care, more engaged patients and discoveries that can help drive the next generation of care.”
The foundation is backing up that belief with an open checkbook. RWJF recently awarded $100,000 to Symcat, a multi-functional symptom checker for web and mobile platforms. Developed by two Johns Hopkins University medical students, the app determines a possible diagnosis far more precisely than is possible by just typing in symptoms as a list of words to be searched by “Dr. Google.” Symcat also links to quality information on different providers and can even direct users to nearby emergency care and provide an estimate of the cost.
After a lot of pre-publicity, Medstartr is here. Modeled after Kickstatr and other crowdfunding sites, Medstartr is the brainchild of Alex Fair who is not only the founder of FairCareMD but also the generalissimo of the Health 2.0 NYC chapter. Lots has already been written about crowdfunding and even crowdfunding in health care (see this Health 2.0 Newsarticle on LumoBack last week), so I thought we’d let Alex describe it in his own words.
Matthew: If I have a company looking to raise money how does Medstartr work? What share of the money do you take?
Alex: Crowdfunding is a little like talking to your in-laws about your healthcare startup. Give a great explanation that works for everyone who has a stake in your project’s success: Patients, doctors, institutions, Big Pharma, HHS, and any partner you want to work with. Then list the rewards they get for supporting your project. Everything from a heartfelt thank you note, to a tax-deductible contribution (through our Partner Cancer101), to a production ready version of your product or service when it is ready to licensing rights for distribution. Next, spread the word through the groups of people who will love your products. Not just the Health 2.0 crowd, but everyone whom your innovation helps. MedStartr helps people fund the innovations in care that people care about and gives them a say in what comes next.
“The cheapest form of capital is customer revenue”
David C. Jones, Altus Alliance
Crowdfunding has had success in high-tech, where people are eager to explore new models. MedStartr is bringing this concept to healthcare where it can be particularly challenging to get a startup off the ground. They have a twist on crowdfunding to address requirements of healthcare, an increasingly popular way to raise capital for startup technologies and interesting projects.
MedStartr is like most crowdfunding sites that are non-equity. They have plans later to have an equity model once SEC rules are clarified. In the meantime. MedStartr is attempting to hit the sweet spot that crowdfunding poster child, Pebble Technology hit. That is, customers get a great deal and early access to a product. Meanwhile, the startup gets non-dilutive funding and market validation to help it grow to the next stage.
“Advertising is the tax you pay for being unremarkable.”
The reality of today’s funding environment for digital health entrepreneurs is that it’s traditional tech investors who have the lion’s share of the money, while most long-time healthcare investors are on the ropes, contending with fleeing LPs and at least the perception of disappointing returns.
While it’s great news that some tech funds seem interested in dipping their toes into the healthcare space, it’s concerning that the investors with the most resources are not necessarily the ones who understand healthcare the best.
Tech investors, in general, are not always comfortable with physicians, and seem much more at home with engineers and developers. These investors also tend to gravitate to businesses selling directly to consumers rather than dealing with the sordid complexities of our current healthcare system.
Many tech investors are also — understandably — drawn to the power of data, and the possibility of analytics, a sensible affinity but one that at times can translate into an excessively reductive view of medicine that fails to capture the maddening but very real ambiguity of medical science, and especially of clinical practice.
It didn’t appear on the lightning strike map, but lightning did indeed strike a young medical student inside the Washington Convention Center right in front of about 1,500 amazed spectators on the first day of The Health Data Initiative Forum III: The Health Datapalooza. Everyone is fine—though our medical student may never be the same again.
Actually, this story began long before Datapalooza, of course. Fourth-year medical student, Craig Monsen, and his Johns Hopkins Medical School classmate, David Do, started collaborating on software applications soon after they met in first-year anatomy class. Craig graduated from Harvard with degrees in Engineering and Computer Science and David from University of Minnesota in Bioengineering.
They’re not quite Jobs and Wozniak—neither dropped out of anything—yet—although Craig, at least, is planning to skip or delay residency. You see, after seeing the Robert Wood Johnson Foundation (RWJF) Aligning Forces for Quality Developer Challenge last year—they got very serious about bringing to life their vision of new applications that could help patients and consumers make great health care decisions.
Just recently, the New York eHealth Collaborative and the New York City Investment Fund held an awesome information session for the New York Digital Health Accelerator at the chic digs of the TimesCenter in NYC. The Accelerator is a program for early — and growth — stage digital health companies that are developing cutting-edge technology products in the areas of care coordination, patient engagement, analytics and message alerts. The event was open to the public and provided thorough detailing of the accelerator, insights as to the types of solutions that participating providers hope to receive and – of course – some networking. If you missed this exciting event, you can check out the recorded stream. If you are interested in the program, access the application.
Twelve companies will be invited to participate in the nine-month program. A review committee — comprised of hospital leadership, technology experts, clinicians and investors — will select the companies. The committee will evaluate applicants on their product innovation in the four focus areas, the track record of their management team and their company life-cycle stage.
When I entered the VC business 10 years ago, I tried to keep thinking about venture capital as a business, where the key focus area was on meeting the needs of our target customers — entrepreneurs and limited partner investors.
In the case of entrepreneurs, those needs have changed radically in these last 10 years. The surge in seed investing over the last few years has been well-reported and analyzed. With advances in cloud computing, open source infrastructure, development tools and general “Lean Start-Up” techniques, entrepreneurs need less capital than ever before. And when entrepreneurs’ needs change (i.e., requiring less capital), smart investors adjust to meet those new needs. Hence, the rise of angels, super-angels, incubators, accelerators, micro-VCs and VC-led seed programs.
But as the “Great Seed Experiment” (as my partner, Michael Greeley, calls it) matures, a new trend is emerging. Entrepreneurs are beginning to learn the difference between what I’ll call Passive Seeds and Activist Seeds. And entrepreneurs are learning that the difference between the two, although somewhat subtle, matters greatly.
Passive Seeds are when a VC invests a small amount of money (for a $200-500M mid-sized fund, typically $250k or less, for a large $1B fund, perhaps $500k or less), to achieve a very small amount of ownership (typically less than 5%) to simply create an option to participate as a more meaningful investor in the future. Passive seed programs get most of the press attention because of their sheer volume.
The federal government is on the cusp of leveling the playing field for healthtech startups. Health 2.0 events have shown an unprecedented wave of innovative healthtech startups have developed over the last few years. You can also see them at demo day events that Blueprint Health, Healthbox, Rock Health and StartUp Health host. However, the health sector may be the single most challenging arena for startups.
I would argue nothing would result in population health improvement (while decreasing healthcare costs) more than having greater engagement by patients in the healthcare process. The Office of the National Coordinator (ONC) could catalyze an unprecedented wave of innovation with a stroke of a pen by strong inclusion of patient engagement requirements in the Meaningful Use requirements.
Having high expectations for Patient Engagement will cause healthcare providers to rise to the occasion to solve this critical issue. It’s well documented that three-quarters of healthcare spend is on chronic disease and decisions that drive outcomes are made by individuals (aka “patients”). It’s long been said the most important member of the care team is the patient. Now is the time to transform that from a catchphrase to reality. The ONC can do that.
The biggest potential stimulus ever for healthtech startups
We have seen how Stage 1 Meaningful Use requirements (PDF) have spurred providers into action. By and large, that has meant an infusion of customers to EHR vendors. Legacy healthIT has had very, very little focus on the patient because financial incentives motivated the development of systems designed to get as big a bill out as fast as possible — i.e., there has been no incentive to involve the patient.
When I first entered the venture capital business 10 years ago after being an entrepereneur, my partners warned me that “my bar” for new investments would get higher over time. In other words, the criteria to make a new investment – clearing “the bar” – would get more strict with time as I developed more experience and saw more things. I found this to be very true, and the notion that investors get wiser and more selective over time has become common wisdom in the industry.
But there’s something very new going on in the last few years – something very striking. Simply put, the collective bar of the investment community to fund young companies has recently gotten higher – much higher.
The entrepreneurs I speak to are feeling it every day. When they pitch their new idea to investors, they are told to build a prototype first. When they build the prototype, they go get customers. When they get customers, they are told to show engagement metrics. When they show engagement metrics, they are told to run some monetization experiments. When they run monetization experiments, they are challenged to prove scalability. Maybe I have Passover on the brain this week, but it’s like investors are putting entrepreneurs through a nightmarish version of Dayeinu, where no matter what they achieve, it’s never enough (speaking of Passover, if you haven’t seen this Jon Stewart clip of Passover vs. Easter, it’s a must. I’ll wait.).
Why is the new investment bar so high today? Isn’t there plenty of euphoria and “animal spirits” to go around with the IPO market returning, marquee acquisitions (e.g., Instagram at $1 billion) and the impending, earth-shattering Facebook IPO?