In an era of accountable and value-based care tied to improving patient engagement levels, and with most patients having a smartphone, there are a ton of digital health companies offering thousands of apps and other technologies.
And, half of them will fail in the first two years of existence. But their failures could be gains for providers, vendors and insurers, says Kaveh Safavi, global managing director of Accentures health business.
The consultancy, which analyzed 900 startups that received less than $1 million to less than $50 million in funding between 2008 and 2013with 1,700 patents between themestimates another $2.5 billion will be invested during the next two years in start-ups in these sectors: patient engagement, treatment, diagnosis and infrastructure.
These wont necessarily be bad companies and many will be run by very smart people, they just might not be getting the funding or the traction that was envisioned, or may take too long to go out looking for more equity investments and get into financial trouble, Safavi explains.
A company simply may not have the scale to take their technology forward; its idea might not be good enough to succeed on its own merits absent contributions from other parts of the health ecosystem.
Or, companies might struggle with regulatory and business modelsthey might have a model that needs a change in regulation for the model to then be of value. Importantly, 57 percent of the 900 analyzed companies got no more than $4 million in funding. But, their technology might be great.
Safavi calls struggling start-ups zombie businesses. They arent dead, but stalled. So, consider buying a company to get the technology and talent, through what Accenture calls vulture capital.
Purchase private equity data and other investment data and identify companies with technology you want that had a low-dollar initial investment and havent gotten any more funds for 20 months or so. Some companies may be small enough to be favorable to acquisition and affordable to you. Other companies might be agreeable to some sort of partnership.
But just because a digital health startup might be struggling, dont assume you can buy them for a song, Safavi cautions. Their IT is extremely valuable and could trigger a bidding war.
All the cautions aside, the significant investments in digital health show it is a vital and growing segment, and may have a larger impact on the industry than currently thought, Safavi says. Healthcare has always been about human interaction and thats not going away, but a big chunk digital interaction is here now and growing, which he believes will make healthcare not just more efficient by also more productive.
The Accenture report, Zombie Start-Ups and Vulture Capital, is available here.
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