With the use of digital health products and services in overdrive, veteran investors and newcomers alike are lining up to fund new ventures, including those that involve the lifeblood of the healthcare industry: data.
While new investors are bullish about a digital health sector that – so far – seems to have no ceiling, those of us who were backing data companies through the 2001 recession, the HITECH Act of 2009 and the latest interoperability magic bullet see things through a different lens.
Through each of these shifts, scores of emerging companies offered to help healthcare enterprises “check the box” on the newest data trend or government mandate. Companies raised large funding rounds without depth in their road maps to sustain the business beyond that single capability. Nobody was happy with the outcomes for these companies once the buzzwords changed and the analyses based on the dirty data were challenged.
With a gold rush mentality surrounding digital health and healthcare data companies today, we could be in danger of repeating history. That’s why I evaluate digital health and data opportunities warily, and with a skepticism that can only be earned by hearing terms like “meaningful use” thrown around more times than I can count.
However, there are outstanding opportunities in digital health today. I’ve been fortunate to partner with a lot of great technology companies collecting, transmitting or transforming healthcare data. The ones that stand out show signs that their plans are sustainable. They understand the industry, and one day will be in a position to offer their differentiated innovation to change healthcare outcomes for patients.
Having been on the receiving end of hundreds of pitches, here is some advice:
Be the best at what you do. Focus and differentiation are critical.
In the world of data there are the distinct areas of data collection, ingestion, cleansing, analytics and distribution. If a company founder says he or she is best-in-class at one of these, I’m listening. If they claim to be the best in all of these areas, I start to get suspicious.
Show me your team is a melting pot of healthcare and data expertise.
Domain expertise is always important, but so is diversity. And for a successful company, this should go way beyond the normal definition of diversity. I want to see people from tech and from healthcare. I want to see people with clinical chops, and people who know how to cleanse data. I want to see the young and idealistic who have their eyes on the future sitting side-by-side with industry veterans who have been around the block. A wide range of professional experiences and points of view are critical.
Understand that offering services alongside technology is an asset.
Sometimes tech teams present to us as though their technology alone will solve our healthcare system’s “dirty data” and interoperability problems. But healthcare pipes are complex, security is paramount, and institutional silos must be addressed, all of which means that technology alone can’t move mountains. There almost always needs to be a services “wrapper” around new technology platforms. I like companies that partner with their customers to reach their desired outcomes – and that means offering services.
Make sure the purpose is more than to fulfill a mandate.
Government mandates come and go, but businesses are meant to be sustainable for the long term. That’s why terms like “meaningful use” or “CMS interoperability mandate” don’t comprise an investment thesis – or a business plan. If a company presents to us, and the second slide in their deck is devoted to a mandate like this, it raises a red flag that this might not be a company with staying power beyond the next government directive.
Do not underestimate the issue of data rights.
Companies that deal with healthcare data deal with the issue of data rights, which is often a thorny, complex matter. The red flags go up for me when I ask the CEO of a data company about data rights and he or she excitedly tells me everything is nicely sorted, and there’s nothing to worry about. My next question will be directed to the company’s legal counsel, and if the answer sounds like a series of platitudes, the red flags are standing at full mast. Data rights are complicated, and I am more ready to trust the CEO who frames the issue that way.
Demonstrate your maturity through a repeatable RFP process.
Simply stated, a codified process for responding to request for proposals (RFPs) is a sign of real maturity in a company. In the absence of this process, a company can get stuck in “missionary selling,” or effectively only selling to “true believers.”
This is not sustainable. A smoothly running process for RFPs tells me two important things: First, this company is selling into a market that is ready to buy. Second, this company will be able to respond to demand at scale.
Digital health is having its moment as the pandemic brings fundamental changes to healthcare delivery. At the same time, we can’t risk repeating mistakes that have been made in the past. One of those mistakes has been to misunderstand the discipline of healthcare and treat it as though it’s just another business vertical. That’s how we end up with the me-too companies and those that do not offer long-term value.
Our goal should be to build companies that can endure beyond the boom times and those that are more than one-trick ponies. If founders and investors are judicious, digital health will deliver on its promise, and then some.
Jessica Zeaske is a partner at Echo Health Ventures, where she identifies and invests in emerging and growth-stage companies. Prior to this, she was the director of healthcare investments at GE Ventures and a principal at Lemhi Ventures. She currently sits on the boards of Genome Medical and Wildflower Health and is a board observer at Abacus Insights.