Health IT Is the New Black

7/27/11Follow @venturevalkyrie

Once upon a time there was “ehealth.” That time was the late 1990′s and there was a temporary ripple in The Force when anything that combined healthcare and the Internet had a suddenly popularity in the venture capital investment community. Companies like the original WebMD, the original Medscape, Mediconsult.com, DrKoop.com, Medibuy, Adam.com, PlanetRx, and a host of other online pharmacies, healthcare group purchasing entities and online health portals were born and sought after by investors looking to capitalize on the collision of the Internet and the healthcare industry. The theory at the time was that you could take any traditional industry, add a soupcon of Internet, and “voila!” instant value creation.

Unfortunately, it turned out not to be so easy and by the early 2000′s, the ehealth industry died a painful death, leaving behind a few bedraggled companies, a mountain of cashed checks with venture capital firms’ signatures on them and thousands of vacant Aeron chairs. Healthcare technology became the Mike Tyson of venture capital investment: wistfully remembered for what it might have been but shunned for how it had behaved towards its fans. “Never again,” the VCs muttered, “never again!” and they returned their affections to the siren songs of biotechnology and medical devices, if they continued to invest in healthcare at all.

What a difference a decade makes.

Fast forward to 2011 and healthcare information technology (HIT) is once again the darling of the healthcare investment community. Having shed its “ehealth” moniker, HIT is all the rage, courtesy of at least five major economic drivers:

  • The passage of the HITECH Act, whereby Congress bestowed a $40 Billion stimulus gift on those willing to make a go of building companies in the EHR and connectivity sector;
  • The passage of the Patient Protection and Affordable Care Act (PPACA), which requires the delivery of sophisticated technology to address massive cost inefficiencies in the U.S. healthcare system;
  • The now-near universal access to Internet, broadband and wireless technologies at every significant U.S. clinical organization;
  • The sudden ubiquity of smart phone and iPad like products that put cheap computing power in the hands of physicians and consumers alike; and,
  • The groundswell of recognition by everyone that the healthcare system just can’t justify the level of waste and inefficiency it has achieved by failing to enter the information age, as every other American industry has done, unless we want to re-invent ourselves economically as a third world country.

The coup de grace that has brought healthcare investors squarely back to HIT has been the increasing difficulty in making biotechnology and medical device investments pay off. As the FDA has made it harder to get products to market and payers are cracking down on reimbursements for new drugs and devices, healthcare venture and private equity investors have had to look up from their lab coats for the next new, new thing, which in some ways has turned out to be the new old thing: HIT.

So what are the signs that HIT is the new black? It is not even tracked as a separate category by the National Venture Capital Association and PriceWaterhouseCoopers, who publish the oft-read MoneyTree report each quarter that reports where the venture money is going. In fact it is almost impossible to get accurate information on how much money is now flowing to the sector from venture and private equity coffers. But the signs are everywhere.

First of all, investment firms that normally stayed on the sidelines are going all in. Investors that would not give HIT companies the time of day are … Next Page »

Lisa Suennen is Managing Partner at Venture Valkyrie Consulting, a firm providing advisory services to companies, organizations, and private equity firms in the healthcare field, and the co-author of Tech Tonics: Can Passionate Entrepreneurs Heal Healthcare With Technology? Follow @venturevalkyrie

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