POV: Two Takes on the Healthcare Investment Scene

James Hill . April 29, 2016

One of the many excitements about being in venture capital is attending events like the New York City Business Health Leaders Healthcare Investment Trends event to hear panels of VCs from multiple healthcare sectors discussing the overall healthcare market.  The market is experiencing heightened investment, even from firms who have not focused on healthcare investments before. 

Following are two of my takes on the current healthcare investment scene:

Industry Expertise Is A Must

One of the most interesting takeaways for someone like myself on the investor side comes from watching how well the non-healthcare focused firms have fared in their investments.  It seems apparent that healthcare, and more specifically healthcare IT, will continue to be a major space for innovation, but whether the firms that have very little healthcare exposure will fare better or worse than those with industry expertise remains to be seen. 


In a world full of predictions, my belief is that certain non-healthcare firms will have the opportunity to succeed if they can manage to recruit new and exciting operating talent to the healthcare space.  With new operating talent in the healthcare space, there comes the chance for new approaches, different views, and unique problem solving in a traditionally slow moving industry. 

This trend may have started in hospitals a few years ago, but now healthcare startups are being started and run by a wide variety of people with completely different backgrounds.  For example, current CEO’s can range from having a background in real estate where they can leverage their knowledge to better address home healthcare, to having a background in marketing where they focus on increasing patient engagement and adherence.

The flip side, it will be far more likely for traditional healthcare investors to continue to succeed because they already understand the space, have talented operating executives built into their network ready to be deployed, and can leverage existing relationships to give healthcare companies a leg up.  This space will continue to be a complicated one to build companies; the a shift from fee-for-service to value-based payments, new large government regulations, and ever-increasing demands on professionals, means it will continue to be a challenge for new companies to enter and succeed. 

Don't Expect Healthcare IT Companies to Raise Massive Rounds

Another takeaway from the panel discussion was the prognostication that 2016 will be a year where truly good companies will separate themselves from the businesses that were merely hype in 2015. With that happening, some experts suggested many of the overvalued healthcare assets will need to move on, or merge, creating potentially disappointing investment returns.  However, unsurprisingly, they suggested companies on solid footing will continue to raise money, but don’t expect them to raise new massive rounds, rather it will be more reasonable amounts of capital to help them continue steady growth. This means that the days of huge valuations without supporting operating metrics should to be coming to an end; that is, if they haven’t stopped already.

hcit_chart_blog.pngWith plenty of people predicting what will happen on the healthcare investment scene, what do you think will happen in 2016?  Is it the year the newcomers to the space will have a reality check, or is it the year where we might realize new investors were one step ahead of the game? 

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