The total amount of venture capital invested in health information technology was $362 million through the first half of this year, compared with $270 million during the same period last year, according to research company Dow Jones VentureSource. A total of 91 rounds of venture funding went to HIT start-ups in 2011, up from 71 in 2010, and the amount of funding was about $660 million, up from $525 million for 2010, the company estimates.
"We're starting to see a re-emergence of concepts that we first saw in the dot-com era that the industry wasn't ready for then," says Dow Jones VentureSource Global Research Director Jessica Canning. Back then, most providers were still doing most clinical record-keeping on paper or stand-alone systems and would have had to completely overhaul their information infrastructure in order to take advantage of all the brainpower being applied on their behalf. Now, entrepreneurs can ride the wave of automation resulting from federal stimulus spending, new I.T. requirements, and the availability of irresistible technological toys. Four out of five doctors carry a smartphone, and virtually every provider of any size has a wireless network.
"The ecosystem of technologies has evolved to the point where off-the-shelf technology can solve a problem," says Vijay Lathi, managing partner of health care technology investing firm New Leaf Venture Partners, which has offices in New York and Menlo Park, Calif. Its current investments include Tigertext, a HIPAA-compliant text-messaging application, and iRhythm, which develops simple cardiac monitoring devices.
"Health care is a $50 trillion economic problem that can undermine the stability of the country," he adds. "Every societal trend has a phase where only fringe people care, and then everyone realizes they have a stake in the outcome. Health care has reached that point."
Investing in HIT is relatively easy compared with high-overhead ventures like drug and device development, says venture capitalist Dan Kincaid, who's heading Cincinnati's Innov8forHealth accelerator program. "It doesn't take a ton of cash to get most HIT startups going, and they're often business-to-business, which makes marketing and sales efforts more efficient," he says. Another factor is that the FDA hasn't (yet) stepped in to regulate most HIT applications, which gives early investors some extra assurance that they might actually make money if the product works.
Few of the dozens of dot-com era health care start-ups survive in anything resembling their original form: Medscape/WebMD, Healthgrades and Epocrates come to mind. But the ideas and inventions generated then have become part of HIT's DNA. Web-based patient portals, secure e-mail for doctor-patient communication, patient reviews of providers, and many other concepts have permanently transformed how health care providers use information. Many observers believe the next crop of entrepreneurs will have an even more lasting and radical impact.
"We're seeing a magic moment happening now for health and wellness innovation," says StartUp Health co-founder and president Unity Stoakes, who graduated from Boston University with a political science degree in 1996, stepped right into the dot-com boom, and has been pursuing entrepreneurial new-tech ventures ever since.
"A lot of different macro trends are coming together at the same time to create what we believe will be a decade of extraordinary disruption and opportunity," he says, citing the convergence of new technologies with a clear and growing need to make U.S. health care better and more efficient. Interest in personal wellness is on the rise. Providers are preparing for coordinated care and pay for performance. A mountain of personal health information, including complete gene sequences, cries out for aggregation and sophisticated analysis.
StartUp Health is only one of several organizations that have been established in the couple of years to help would-be HIT moguls get going. There are also general-interest accelerators out there, like TechStars, Dreamit Ventures, and Y Combinator, nurturing tech start-ups in all industries, but the health-only sector is particularly lively.
Anne DeGheest, a long-time health and life-sciences venture investor, knows a new idea when she sees it, and she's seeing a frenzy of them now. She was involved in the founding of both Nellcor (one of the pioneers of pulse oximetry) and Pyxis (which created and still dominates the market for secure point-of-care drug dispensing). She founded HealthTech Capital in 2010 to fund and mentor HIT startups. Its current investments include PharmaSecure, which offers a technology to thwart drug counterfeiting, Wellness FX, which creates patient wellness tools that incorporate lab results and personal consultations with health professionals, and Niveus Medical, which creates technologies to prevent debilitation in bed-ridden patients.
DeGheest sees some of the tunnel vision that characterized the dot-com era, when entrepreneurs believed the Internet could fix health care all on its own. "There are still a lot of young entrepreneurs who naively believe that social media and mobility will solve everything," she says. When evaluating an investment, she looks for management teams that understand technology, health care (especially the often conflicting interests of payers, providers and patients), and how to engage users and change their behavior, she says.
Here are six organizations that are helping to grow new HIT companies.
Location: New York
Some interested parties: More than 150 mentors from companies large and small, including providers, insurers, investors, and other start-ups.
Mission: "We believe pairing talented entrepreneurs with experienced healthcare entrepreneurs and venture capitalists can provide you with warm introductions and the strategic and tactile advice you need to succeed. "