Why Health Tech? Why Now?

Exciting news!  Esteemed tech accelerator Y Combinator, who has funded more than 700 startups since 2005, is for the first time actively recruiting health technology startups. This was on display at last week’s (Aug 19) demo day where one dozen health-related startups presented, marking the largest proportion of health tech companies in a Y-Combinator cohort in their nine-year history. When asked, Y-Combinator’s president Sam Altman stated, “it’s the right time for us to try health care”. This trend is echoed by many of the largest technology firms and has been rapidly gaining traction throughout the greater investment community as well. Simply put, health tech has been HOT in 2014. And to quote Mayfield Fund’s Tim Chang, “startups are finally hacking healthcare”. How? “By combining premium services with extreme convenience, engaging social networks and communities, and experimenting with information coming from the proliferation of wearable devices that are beginning to penetrate consumer markets” (his full TechCrunch guest post can be found here).

That said, I’d like to take a simple look at a few macro drivers behind the current health tech movement that I feel help to better understand: Why Health + Tech? Why Now?

  1. Legislative Environment

Two Acts in particular have helped drive us to rethink the way healthcare is delivered and paid for in the US. The first is the HITECH Act that was enacted as part of the American Recovery and Reinvestment Act of 2009 to “promote the adoption and meaningful use of health information technology”. This act incentivizes healthcare providers to demonstrate “meaningful use” of electronic health records by 2015 and in its wake, has spurred the entrance of a crush of startups into the health IT infrastructure space.

The second is the politically charged Affordable Care Act (aka Obamacare), which, at a high-level, puts consumers back in charge of their health care and focuses on improving the quality and reach of care.  The full act is a beast at roughly 1,000 pages – simplified features and rollout timeline can be found here. Many now rapidly growing healthcare companies can trace their origins to within one to two years of the ACA passage in 2010.   Note: A 2014 list of these successful US health companies from Inc. can be found here.

  1. Business Environment 

Entrepreneurs have long recognized the upside growth potential of doing business within the healthcare industry. First, the sum that is the US healthcare ecosystem is riddled with inefficient parts that beg for an intervention making it an industry primed for tech disruption. The caveat of playing in healthcare is dealing with lots of red tape, which has long dissuaded tech entrepreneurs. Although still a very relevant consideration, this is increasingly becoming less of an entrance sticking point. Second, the US healthcare market is absolutely HUGE, equivalent to an estimated 20% of US GDP. Nearly $4 trillion is a big number and it doesn’t take a big % of market capture to excite the crowd. I cannot remember where I heard it, but to quote an unnamed source, “it is the golden age of entrepreneurship in health”; entrepreneurs are acting on opportunity, investors are placing bets and capital is flowing.

  1. Investment Environment

The healthcare industry is historically a tortoise, with change occurring very slowly and it coming at high cost. This does not align with the investment strategy of a typical early-stage tech investor who prefers to hunt for hares that have the potential to scale rapidly and massively. Biotech investing, for example, involves betting on companies somewhere along the long and expensive road of drug development and FDA approvals – this is typically reserved for niche life sciences investors. Ok. So why is the “mainstream” now more interested in health? The short answer is that a new breed of health companies is increasingly leveraging computer science – including cloud processing, big data analytics and sequencing – to disrupt the healthcare regime. This aligns with Tim Chang’s comments above and has been echoed by other health tech investors including Google Ventures’ Bill Maris. For these companies (commonly known as digital health companies), the product lifecycle has shortened and costs have decreased, making them more hare-like and aligned with the tech investment archetype.  The numbers back it up as US venture investment in digital health for 2014 was $2.2B+ at the half-year per Rock Health and there is no sign of slowing as investment to date is strengthening investor confidence that health tech companies can produce healthy returns.

Ok, now that we’ve discussed a few “whys”, I’d like to take a quick look at some top of mind big US-based corporate “whos” that are currently playing in the health tech sandbox. Note: this is by no means an exhaustive list – just a cross-section to illustrate health’s growing reach.

Large Tech Companies

  • Apple – launching consumer wearable health data platform, HealthKit, and partnered with other health companies including Epic (EHR) and Mayo Clinic
  • Google – launching consumer wearable health data platform, Google Fit
  • Samsung – launching consumer wearable health data platform, SAMI
  • IBM – partnered with Apple to build a suite of platforms and apps to securely transport health data to healthcare providers and EHRs
  • Microsoft – rumored to be improving existing consumer health data platform, HealthVault, and its Kinect device has been used in various health applications
  • Amazon – company brass recently met with FDA – may be the next US tech giant to enter the market?

Pharma, Biotech and Medtech Companies

  • Novartis – partnered with Google on developing the “smart” contact lens and with Proteus Digital Health on furthering the development digital medicine, plus has a very active corporate VC arm
  • Genentech – CEO, Ian Clark, recently expressed interest in moving into the mobile health space for disease monitoring and has partnered with new health tech startups like PatientsLikeMe
  • Medtronic – CEO, Omar Ishrak, recently committed to investing $10B over next decade in health tech startups

Corporate Tech VCs

  • Google Ventures – health tech companies comprise a sizable portion of GV’s portfolio including 23andMe, One Medical Group and Doctor on Demand
  • Qualcomm Ventures – one of the most active non-healthcare corporate venture groups with health tech investments including Practice Fusion, Fitbit and Airstrip

Keep your eyes on health – the future looks bright!  

As always, you can check out my full coverage of the digital health sector here.

Devin Christiansen 

@devchristiansen

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