fragmentation of [these entities]. Some programs, their customer is really the hospital or industry. Some accelerators are working just with idea-stage companies on these eight-week programs to help get an idea off the ground and maybe help get a little seed round. The same month we launched [in 2011], Rock Health launched as an accelerator. They’ve since abandoned their accelerator program and have basically become a VC firm, a seed investor.
Then you have organizations like ours that work with a little later stage companies. We’re focused much more on commercialization over several years, on really building scalable growth companies.
X: Why that approach?
US: When we launched, in the tech world there was Y Combinator and Techstars, which are tech accelerators: 12-week programs that give you a little bit of cash and a demo day. That model just did not work in healthcare. You need a long-term construct in order to get anywhere. We launched with the vision of helping build 1,000 companies over the next 10 years. There isn’t going be one Uber-company that’s going to fix healthcare, it’s going to be hundreds or thousands of companies that each fix a different aspect of the system and, combined, becomes what transforms the whole industry. If we can be the organization that brings it all together, and makes it very easy for industry and investors to tap into, then we see that as not only a great business, but one that makes a big impact.
X: So it’s an all-comers approach?
US: It’s almost around the charter school model, which is no entrepreneur or student left behind. Rather than focus on one or two hits, how can we use the network effect to pull everybody forward? And even if it’s a double or a triple or home run, and not a grand slam, that’s meaningful to us. That’s a different philosophy than a VC would operate under.
X: Isn’t that much riskier and cumbersome?
US: We just believe a smarter way to do it is to not walk past a company just may need a little more nurturing. A lot of venture investing today has become derisked, they’re doing it at later stages. We’re going the other way which is going very early, developing a methodology and network to nurture these companies through the dips and valleys, get them over the hump at a time when nobody else from the venture community would look at them.
X: What are some of the lessons you learned, the mistakes you made, developing that process?
US: We learned that it’s very important not to be 100 percent virtual, and also not be 100 percent in real life because people are spread out everywhere and they’re traveling. We learned that being location agnostic is absolutely critical. You have “doctor-preneurs” that may have practices in Los Alamos, NM; they’re not going to move their practices to come to Silicon Valley or New York for three months. Also, companies that aren’t paying attention to their business model from day one, chances are they’re going to fail in healthcare. You can do that in the tech world and scale up and figure it out, but in healthcare you really have to understand the business model much earlier in the lifecycle of your company. Lastly, if you don’t have a full-time entrepreneur leading your startup, it’s just not going to work.
X: What mistakes do young healthtech startups make?
US: They confuse their users with their payers. There are a lot of people building widgets versus more comprehensive solutions, and [the latter is] what the market is really yearning for. There are companies we’re seeing that just do not know how to package their story. And it’s amazing to us how many companies don’t know the competitive landscape. I don’t know if they just have blinders on, but there are a lot of me too-type things. Which I guess is normal—there were 200 Youtube type companies when Youtube launched.
X: How would you say the dynamic between startups and large companies is changing?
US: In the tech world, the disruptors just go around the established players. If you’re Facebook, you don’t go partner at the beginning with the big media companies, you eat their lunch and you go around them and destroy them, and then later they have to advertise on your platform.
In healthcare, it doesn’t work that way. Because of how much of healthcare is controlled by the government, payers, providers, and the care systems, you have to collaborate with them to get anywhere. The industry is realizing it needs to collaborate with entrepreneurs in order to innovate and drive costs down; to prevent hospital readmissions from spiraling out of control; to transform the care delivery process; and to implement home healthcare, telehealth, and digital health solutions.
Not only are we interested in their capital to back us, but also their ability to either further invest in our companies or commercialize and help strategically grow them.
X: There’s been a lot of hype with digital health. There’s a long way to go before it’s integrated into society. What has to change?
US: There’s a transformation underway to focus on data. We still need to turn that data into actual insights that are going to change outcomes and behavior, and to be able to prove that. That’s why you’re seeing so much investment in platforms to analyze the data now. That was the largest [digital health investment] category in 2014 and in the last 18 months. Companies are saying, “We can track someone’s entire genome, we can get all this information, but now is there a platform that can make that data meaningful to me as a consumer or a patient?”
Can we also look at an entire population and make those data useful to the insurance company, and to the hospital, and start looking at macro-trends and population health trends? That’s where things are going.
X: Have you found healthcare organizations willing or resistant, to try new things?
US: With hospitals and the provider landscape, there are three categories. One group is focused on financial engineering, M&A, and consolidation. Another group is literally doing nothing, they’re pretending like technology doesn’t exist and they’re going to keep operating the way they are until they go out of business or someone disrupts them. And then you have the very progressive group :organizations that realize they need to reinvent and focus on earlier stage innovation. Every week new organizations fit that bill, they’re realizing if they don’t do this, they’ll be the dinosaurs that go extinct.
