The evolution of the healthcare industry has brought forth innovative startup opportunities in the past few years. A few are actually helping to change the world. Unfortunately, typical buzzwords for other startups, such as “disruption,” “big data” and even “globalization,” have oversimplified the understanding of entry into the healthcare startup industry.
In the past five years, my colleagues and I have seen countless healthcare pitches, and have helped 18 TAF-funded healthcare startups raise more than $115 million. We also have seen countless ideas and technologies fail to achieve their goals of changing the healthcare industry.
Here are three myths I want to dispel to help some of those struggling healthcare startups find the funding they need to turn their destinies around for the better.
Myth No. 1: The Barriers To Entry Are Easier Than Ever
The landscape of the healthcare industry has changed dramatically over the past five years, and some people believe that emerging healthcare startups no longer need Intellectual Property (IP) or license to enter the space and thrive. While some emerging healthcare companies, like wearable devices, show great potential for growth by leveraging innovative business models, they only make up a small portion of the overall healthcare industry.
Significant barriers remain for both emerging and traditional healthcare startups, even though many founders assume they will always find sufficient funding. Unfortunately, it would be dangerous to assume that every round of funding will see a steady flow of cash, and we have seen several startups with interesting products fail due to insufficient liquidity to sustain operations.
It is crucial to find early stage investors who are interested in the company’s long-term goals of future fundraising. This can prove challenging, because healthcare startups often have longer investment return periods, which can deter some investors and make others extremely cautious.
The future looks promising for healthcare startups, and the healthcare industry.
Unlike basic wearable technology, we have seen several successful startups born from research labs in universities. For instance, Ginkgo Bioworks, spun out from MIT in 2008, recently closed a Series B for $45 million. Kolo Medical is a revolutionary healthcare technology that started as a lab project at Stanford University and held more than 40 patents prior to seed funding.
While these projects had the advantage of national grants and years of work, the principle investor also remained involved through the early stages of the startup, and continued playing a big role on the advisory board because of the unique technology and potential.
Strong patents and sustained research capabilities guaranteed the success of these startups, two factors that investors can’t ignore.
Myth No. 2: Healthcare Startups Need Big Data To Succeed
The traditional healthcare field has accumulated great amounts of data. Unfortunately, most of the data is low quality and unstructured. Privacy also remains a challenge, because regulations exist to protect patient information being released to third-parties, such as other healthcare providers and pharmaceutical companies.
Data collection and sharing challenges have forced some healthcare startups to start collecting data by providing services and accumulating data in return, such as wearable Fitbit and personal genomics, 23andme. Startups that own high-quality data (and can build a profitable business model to make sense of it) will win the game and have a better chance of a higher valuation.
Collecting high-quality, well-structured data has never been an issue for the pharmaceutical industry. However, data-mining algorithms, artificial intelligence, prediction and application, combined with biotechnology, has become a core strength to distinguish one startup from the others.
With the popularity of “precision medicine” and the advancements of sequencing technologies, we are confident that big data will play an essential role in the discovery of new medicine and treatments. For example, Numedii uses big data effectively to expedite the new drug development process. It overcame the challenge of data collection by forming strategic partnerships with data-source suppliers.
Myth No. 3: Healthcare Globalization Is Still Far Away
Thanks to the Internet, many healthcare startups can easily scale their solutions globally. Globalization is here to stay. For instance, MyHealthTeams builds social networks for chronic-disease communities, and has already expanded to eight countries. Globalization also includes combining different health concepts from all over the world to drive technology breakthroughs.
Startups like PhysioCue built core technology deeply inspired by Asian acupuncture concepts. This helped PhysioCue win popularity in international markets, such as China and Korea.
To succeed globally, ambitious entrepreneurs must also heed significant international differences. Unlike Western consumers with strong dependencies on healthcare insurance, Chinese healthcare consumers are much more willing to spend their household income on healthcare products and services. Because of this, many high-performance medicines can quickly gain popularity in the Chinese market.
It is crucial to find early stage investors who are interested in the company’s long-term goals of future fundraising.
Additionally, healthcare products targeting poor health and recovery issues also can see sales grow quickly. The population size in China also enables high market acceptance and great early stage product tolerance for healthcare startup products. Therefore, collaborating with local investors and/or business development teams is a clever idea to quickly learn market needs and crack the nut.
Overall, the future looks promising for healthcare startups, and the healthcare industry. As more companies come on the market, I hope they are backed by strong patents and unique technology, using the power of big data to their advantage and always thinking of a global perspective.
Investors will have more to look forward to with these diverse startups that want to solve the next great healthcare riddle, and I hope to see them succeed.