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Tech companies can make money in health

Investment is flooding to new healthcare technology ventures; can Silicon Valley reshape the industry despite inherent complexities?

Overview

Investments are increasingly flooding to the health technology industry. Venture funding deals in health technology grew nearly 200% between 2010 and 2014.i More recently in 2015, 267 digital health companies raised more than $2 million.ii Notably, many of the investors who have backed health technology ventures are those that have previously invested in consumer technology.iii In an industry that is not solely consumer-based, albeit ripe for disruption, are investors aware of what they are in for?

What Forbes considers the world’s most profitable industryiv  is arguably ready to be revolutionized, and large technology companies, venture capitalists, and telecommunications leaders are leading the way. Accenture Strategy analysis reveals that 85 percent of technology companies and 77 percent of venture capitalists surveyed consider disrupting healthcare to be a top strategic priority.v

Both big and small, the industry is converging on utilizing technology solutions as “[tech companies] will play a powerful role in combating the over-employment and declining productivity that has plagued this industry and in helping providers improve the quality of care”. vi

Recent healthcare reforms make this an industry more inviting to newcomers. The combination of an aging population that creates increased demand and spending and the availability of cheaper technology that lowers the barrier to entry, are driving forces attracting start-ups to an industry that has historically been challenging to disrupt.

Key Findings

Compliance has always been and will continue to be quintessential to the healthcare industry; regulations and standards often can translate to lengthy wait times for regulatory approvals and non-compliance with these standards can result in costly penalties. While agility and adaptability are hallmarks of Silicon Valley startups, strict compliance is far from their forte, and some healthcare startups have already felt the repercussions of non-compliance. vii

The demand for technology and rates of adoption in healthcare provider organizations are already high and likely to only increase: a technology survey of cloud computing adoption in healthcare provider organizations found that 83 percent of IT executives report that they are using cloud services today, with SaaS based applications being the most popular. viii

The $6.5 billion invested in new healthcare ventures in 2014ix already created success stories in consumer health technology; with wearables being a prime example of consumer-health focused technology that has achieved great growth. Wearable technology offers the possibility of bridging gaps that exist between software and hardware, and refocusing the industry on the consumer, and tech giants are paying attention. (Apple has released a software network to enable monitoring of medical conditions at home with an iPhone and Alphabet Inc. has several investments and interests in healthcare innovation technologies.)

Large telecommunication companies, with an advantage of already being in consumers’ homes are now developing home health-monitoring systems for subscribers. In short, wearable technology is far from representing the ceiling of healthcare technology innovation.

Analysis

The market for technological development is incredibly expansive in the healthcare sector. Companies interested in becoming part of the health technology industry have a broad spectrum of care needs that they can address: from targeting individuals that require -or elect to adopt- technologies that perform monitoring on a day-to-day basis to big data and analytics that can provide actionable insights on a national level.

With a complex and expansive list of stakeholders involved; from patients, individual/institutional providers and product suppliers, to a large contingent of periphery industries such as insurance providers and government agencies, there are seemingly endless areas to disrupt.

It is important for venture capitalists to realize the complexity and dissimilarity of the healthcare industry to other industries in their portfolio. Yet, the complexity of the industry should not deter innovation and disruption from newcomers. As a market that saw leaders in the space grow from small startups to public companies, wearable healthcare technology provides an insight into the potential growth that health technology offers.

While healthcare might be Silicon Valley’s new darling, advances in health technology will not exclusively be the domain of startups and new ventures: Incumbents in healthcare, with industry familiarity and the pre-existing infrastructure can, and indeed should, learn from Silicon Valley’s thirst for innovation and the continuous strive for disruption.

Startups looking for healthcare as the next industry to advance consequently need to understand–and comply with–the complexity and rigor of an industry that is exceptionally profitable and has room for growth.


i Laura Lorenzetti, “Health Care Startups are Booming. Here’s What You Need to Succeed”, Fortune (February 19, 2015) online: http://fortune.com/2015/02/19/healthcare-startups-succeed/.

ii Christina Farr, “Dear Silicon Valley: There are No Shortcuts in Health Care”, Fast Company (February 12 2016) online: www.fastcompany.com/3056658/startup-report/dear-silicon-valley-there-are-no-shortcuts-in-health-care.

iii ibid

iv Liyan Chan, “The Most Profitable Industries in 2015”, Forbes (September 25, 2013) online: http://www.forbes.com/sites/liyanchen/2015/09/23/the-most-profitable-industries-in-2015/#3b3f35177712.

v Accenture Strategy High Tech in Healthcare Survey, July 2015. This primary research consisted of 56 interviews with executives from technology firms (26) and venture capital firms (30) located in the Silicon Valley region<

vi Bob Kocher & Bryan Roberts, “Why so Many Tech Companies are Getting into Health Care”, Harvard Business Review (December 8, 2014) online: https://hbr.org/2014/12/why-so-many-tech-companies-are-getting-into-health-care.

vii Supra, note ii