Webinar: Can’t miss advice on funding a health care startup

Why hasn’t the health care system been disrupted beyond recognition already? Health tech startups have the opportunity to offer powerful technology with hugely positive impact, but the health care industry itself is a huge barrier. You’ve got fluctuating payment models, care structures and patient journeys, shifting relationships between patients and their physicians, complex regulations and more to hurdle. And all of these obstacles are opportunities, says Daniel Galles, partner at Providence Ventures.

“The sad but good news around startups entering health care is that there’s no dearth of needs,” Galles says.

Technology, data, and the aggregation of data is all reasonably new to health care, with electronic medical records really taking off over the last decade. Everybody’s digitally enabled and therefore sitting on a lot of valuable data, but most organizations are in the early stages of figuring out what to do with it.

Technologies like AI have huge potential from a clinical perspective — patient health outcomes can be improved by personalized scrutiny of their individual data patterns. On the administrative side, there’s massive opportunity in the ongoing digitization of health care, with AI enabling the automation of time-consuming EMR tasks and more. On the customer side, AI-powered customer relationship technology can create personalized experiences and communication that transforms the connection between patients and their health care providers.

So there’s an epic feast of low-hanging fruit for entrepreneurs, but how do you get in on the bacchanalia?

VCs may have the answer: Seek out funding from a partner who understands the industry and has your back. But your starting point, says Mike McSherry, CEO of Xealth, a digital prescribing and analytics platform, is first figuring out where you stand — not the easiest task in the largest industry in the U.S.

“There are investors and customers dedicated to the insurance side of it, the hospital side, the consumer side, the medical device side, the pharma side,” McSherry says. “You need to first segment where your product or service provides benefit, and to whom.”

And to ensure that funding is the right avenue for your start-up, then figure out whether or not there is a dedicated category of investors in that space.

“You need to find a key champion or evangelist at one of these investment companies to encourage the adoption of your product or service,” McSherry explains. But still be prepared to wait longer than you expect.

“One thing I’ve noticed in health care versus my other startups, the cycles are generically slower in health care,” he says. “In technology the general rule is 18 months of forecasted run rate, but in health care I would try to do two to two and a half years of projected run rate, just to accommodate that slower sales cycle.”

But the pace of change is starting to accelerate, with a lot of big deals happening as the big guys get into the business, from Amazon to Apple and Wal-Mart, and the mergers of Humana, and Walgreens and CVS.

“You do see the pace of activity and deal cycles shortening, because they’re fearful of getting run over,” McSherry says. “They have these massive consolidations happening, and everybody is thinking it’s risky to stand still. And, of course, there’s a bit of luck in timing and strategy of what your company does, if it’s the nexus of a larger need and technology differentiation.”

One of the most important considerations before you throw yourself into the fray is to remember health care’s mission base.

“The standard rules of commercialism don’t always come to bear,” he says McSherry.

For example, airlines charge different prices for travel, even though they all do the same thing. Try to do that for hospital appointments or surgeries or medical diagnostics, and you run into ethical questions around economics.

“Rich people buy all the convenient appointment times and you leave the poor to odd hours — that’s not ethically or morally fair,” says McSherry. “What typically stands in modern commercialism and capitalism is harder to bring to a morally and ethically responsible health care industry.”

There are a lot of tech entrepreneurs coming into health care, and we really need it, adds Galles.

“But there’s an interesting dynamic of trying to disrupt and revolutionize health care that needs to be balanced with understanding the current state of the union, as it relates to health care,” Galles says. “It doesn’t mean you can’t change things, but if you don’t understand the current dynamics and how the interplay works — I’ve found that doesn’t work too well.”

This webinar originally appeared as sponsored content by Providence St. Joseph Health on VentureBeat under the headline “Can’t miss advice on funding a health care startup”