The Paradox Of Healthcare Startup Funding

By Megan Williams, contributing writer

Startups present multiple opportunities for healthcare IT solutions providers — from potential new clients to the opening of new corners of the industry. News of money pouring into the startup space is reason to pay attention. However, while it’s easy to see new funds being invested in the industry and increased public acceptance as cause for celebration, it’s also important to remain sober and informed about the realities of sector growth in the long term.

The Good News: Everything Is Awesome

StartUp Health recently released its 2015 midyear findings — a report filled with positive news of growth and expansion in the healthcare startup niche.

The report (available for download here) highlights five, specific areas that summarize the movement of the 2015 healthcare startup sector:

• The Growth Of Personalized Medicine: The $1K genome and government initiatives that support precision medicine and genomic analytics companies have taken off, especially in the areas of analyzing, data basing, and discovering actionable insights around congenital disease treatment.
• The Market Is Maturing: While investor-to-startup capital flow has remained about the same in relation to the first half of 2014, median funding amounts have increased, specifically around startups in “hot markets” further along in the game. StartUp Health interprets this as investors becoming more educated around what works and what doesn’t.
• Global Innovation On The Rise: Across the globe, more than 7,600 startups have begun developing solutions in digital health. This trend is expected to persist as the borders between talent, tech, and nations themselves soften.
• Investor Diversification: Investing is happening at all stages — top investors were found to be participating from seed to series D rounds. The top four investors in 2015 so far have been corporate venture arms.
• The Over-50 Market Remains Strong: The 50+ market has kept its proportions in relation to digital health funding overall — largely due to the increasing prevalence of chronic disease in older demographics and the need to have their health issues addressed.

The report goes on to highlight the top 10 largest deals, most active subsectors and U.S. metro areas, and notable international deals as well as top venture investors.

The Bad News: Zombies

Still, for all the talk of success and growth within the industry, there are warning signs against blind enthusiasm.

Accenture released a report this month indicating that over half of the digital health start-ups that received funding between 2008 and 2013 are not expected to last more than 20 months. These “zombie startups” are at high risk because of the nature of the industry (failure rates match cross-industry standards), and hold especially promising investment potential for acquisition by larger, more strategic entities.

They are identified as companies that received less than $50 million in funding between 2008 and 2013 and that have not received additional funding in 20 months or more.