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In New York, A Digital Health ‘Mashup’ Builds A Startup Army

Xconomy New York — 

[Corrected 8/24/15, 12:40 pm. See below.] The booming field of digital health means different things to different people. Even the president of StartUp Health, a New York-based firm that wants to help build 1,000 digital health startups—yes, literally—acknowledges his company is a little tough to define.

“We’ve had a challenge with how people bin us and bucket us,” says Unity Stoakes, who co-founded the firm in 2011.

That’s because StartUp Health is, in Stoakes’ own words, a “mashup.” It’s part accelerator, and part venture fund. It’s a mentorship program, a virtual classroom, a network of healthtech entrepreneurs, and a generator of industry reports, detailing things like which subsectors of healthcare are attracting the most money. Stoakes calls StartUp Health a “health innovation company,” but then quickly acknowledges how confusing that sounds.

However StartUp Health is defined, at least one large nonprofit healthcare provider thinks it’s doing something right. This past June, Aurora Health Care, a Milwaukee-based healthcare system, invested $5 million to become StartUp Health’s lead backer, says Stoakes. [An earlier version of this paragraph mistakenly said Aurora is based in Madison, WI. We regret the error.]

It’s not just the cash that’s significant. By forming a multi-year alliance with the entrepreneurial network, Aurora gets to scout new technologies coming through StartUp Health that could change its business and health practices.

Stoakes says, for instance, Aurora is testing a virtual product from Modesto, CA-based Direct Dermatology: snap a pic of a mole with your smartphone, mail it, and a clinician will check it out.

“[Aurora’s] got the ability to be a petri dish for our entire portfolio,” he says.

The firm that Stoakes (pictured above) and Steven Krein, both longtime tech entrepreneurs, founded four years ago now has about 25 employees. They launched with the help of high profile backers, such as former Time Warner CEO Jerry Levin, now the StartUp Health chairman, flamboyant basketball owner Mark Cuban, former AOL CEO Steve Case, tech investor Esther Dyson, and Foundry Group managing director Brad Feld. At the outset, Stoakes and Krein boldly predicted they would help launch 1,000 digital health startups in a decade.

They’ll have to pick up the pace. The syndicate invests up to $200,000 in 10 to 12 startups a year. To date, StartUp Health has nurtured 106 companies that have collectively raised over $200 million in funding. Stoakes claims it is the largest portfolio of healthtech startups, with companies from New York to the San Francisco Bay Area and even abroad in countries like Israel.

“Portfolio” is a key word, because StartUp Health takes equity stakes, anywhere from 2 to 10 percent, in young companies.

Once invested, StartUp Health begins a three-year “academy” for its startups, with coaching, virtual classes, quarterly in-person executive summits, exclusive reports and studies, all while connecting them to its entrepreneur peer network.

One example of the reports available: Stoakes says StartUp Health knows which venture investors and potential customers are not “entrepreneur-friendly,” and is happy to share that information.

“We have a whole database about who to avoid in the industry,” he says.

But the firm also helps makes connections. AdhereTech is a maker of smart pill bottles for drug adherence. CEO Josh Stein says that StartUp Health provided introductions to customers who are using his product, and investors who backed AdhereTech’s $1.75 million Series A last year. Stein wouldn’t name names or disclose how much equity AdhereTech gave up to join in 2013, but says what makes StartUp Health different is the length of the program.

“Continued support is a huge need for healthtech companies,” Stein says.

So far, four StartUp Health portfolio companies have been acquired—Avado Health (acquired by WebMD), Gritness (Under Armour), Basis Science (Intel), and Arpeggi (Gene by Gene)—but the terms weren’t disclosed for three of those deals. Intel reportedly paid in the $100 million to $150 million range for Basis.

Of those remaining, all but two are operating, and about three quarters are either out raising money or have already done so, according to Stoakes. He declined to specify StartUp Health’s returns or discuss how many companies are profitable, except to say that most of them are generating revenue and scaling and “our fund is way up, beyond our expectations.”

Stoakes says StartUp Health began with a $7.5 million microfund. The company’s bankroll is now getting bigger. A Form D filing shows that StartUp Health is looking for $30 million, and VentureBeat reported that the Aurora investment is meant to be the first of several $5 million installments, with the rest to come from big companies in retail, healthcare, and other sectors. Stoakes confirms that the $5 million from Aurora—which didn’t respond to requests for comment about its investment—is the first tranche “of a much larger raise with a [group] of strategic partners.”

This type of support is important for digital health. As my colleague Alex Lash wrote last year, the field badly needs clinical data that show their apps and gadgets improve outcomes and save money to match the hype and dollars going into them.

With that, and StartUp Health’s unique place in the healthtech ecosystem in mind, I spoke with Stoakes at length. Here are some edited excerpts from our conversation.

Xconomy: There are a lot of different accelerators, incubators and funds specifically devoted to healthtech. Where does StartUp Health fit in?

Unity Stoakes: We call ourselves a health innovation company, but people are always like, ‘Well, what’s that?’ We have this academy that helps grow companies and we have the largest portfolio of digital health companies, so we’re a mashup between an investor, an incubator, a business network like [Young Presidents’ Organization], and a school for entrepreneurs. We also track massive amounts of insights and data into where the money is flowing, what business models are working, who’s investing in what subsectors, and in what regions, and our companies can have access to that. So as they’re doing customer development [and] raising capital, they know in real time what’s going on in the market around the world.

X: How do you compare that approach to other organizations trying to help digital health startups grow?

US: We’re now seeing a … Next Page »

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