Who Will Pay for Digital Health? The Investor Point of View

Abstract

The beauty of investing in digital health is that it combines the high-risk/high-reward paradigm, synonymous with the tech industry, and the stability/defensiveness paradigm of the healthcare industry, thereby hedging or mitigating the investor’s risk and providing an ideal counterbalance to future rewards. While many investors from Wall Street to Wuxi are singularly driven by maximizing profit, a great number of healthcare and digital health investors are driven by the tandem outlook of both financial profitability and improved societal benefits.

In this chapter, we will view the digital health industry through the lens of an investor, starting with the investor’s contribution throughout the entrepreneurial life cycle and ending with the main drivers behind digital health investing. The investor perspective will often provide key insights for budding digital health entrepreneurs and will share with them some tricks-of-the-trade. This chapter will also provide them with insights into the inner workings and motivations of the different types of investors. The chapter will also cover the current state of digital health investors and discuss some of their investments. We will also cover some of the current and future models of digital health finance.

Perhaps the best way to summarize this chapter is that the greatest investors, like the best spouses, always see the potential of the person in front of them rather than their current status. Technical terms, such as top line revenue, net present value, P/E (price:earnings) ratio, and buzz words such as traction, big data, and brighter days ahead, play second-fiddle to the all-important truth in investing: you invest in the potential of the team.

Appendix

20.1.1 Profiles of Select Digital Health Accelerators

20.1.1.1 Y Combinator

Overview

Investments: 961 Investments in 885 Companies

Exits: 1 IPO & 117 Acquisitions

Founders: Naveen Jain, Paul Graham, Jessica Livingston, Robert Morris, Trevor Blackwell

Headquarters: Mountain View, CA

Funds raised: $700M

Categories: Finance, Venture Capital, Consulting

Description: Y Combinator is a startup accelerator based in Mountain View, CA

Employees: 1193

Company valuation: $20M

Website: http://www.ycombinator.com

Investor Details

Founded: March 1, 2005

Aliases: ycombinator, YC

Contact: info@ycombinator.com

Y Combinator is a startup accelerator based in Mountain View, CA. In 2005, Y Combinator developed a new model of startup funding. Twice a year they invest a small amount of money ($120K) in a large number of startups (most recently 68). The startups move to Silicon Valley for 3 months. The YC partners work closely with each company to get them into the best possible shape and refine their pitch to investors.

Successful exits by Y Combinator-funded companies include Reddit, Heroku, and OMGPOP. Other successful companies that went through Y Combinator include Dropbox, Airbnb, Stripe, Loopt, Justin.tv, Weebly, and Scribd.

20.1.1.2 Blueprint Health

Overview

Investments: 51 Investments in 50 Companies

Exits: 2 Acquisitions

Founders: Brad Weinberg, Mathew Farkash

Category: Healthcare

Description: Blueprint Health is a mentorship-driven startup accelerator program supporting companies at the intersection of health and technology.

Website: http://www.blueprinthealth.org

Employees: 5

Valuation: $3.2M

Investor Details

Founded: 2011

Contact: info@blueprinthealth.org

Blueprint Health is geared toward healthcare companies seeking to benefit from our intensive 3-month program focused on acquiring clients and capital. Blueprint is a Charter Member of the Global Accelerator Network and started by TechStars. Selected companies range from one founder with an idea to businesses that have customers, investors, and significant revenue. Blueprint’s seventh class began on February 2, 2015.

20.1.1.3 Rock Health

Overview

Investments: 93 Investments in 80 Companies

Exits: 9 Acquisitions

Founders: Halle Tecco, Nate Gross

Headquarters: San Francisco, CA

Funds raised: Undisclosed

Categories: Mobile, Apps, Venture Capital, Healthcare

Description: Rock Health is an accelerator and seed fund investing in digital health startups

Website: http://rockhealth.com

Employees: 50

Valuation: $81.56M

Investor Details

Founded: 2010

Contact: hello@rockhealth.org

Founded in 2010, Rock Health is the first seed fund focused exclusively on healthcare technology. Rock Health provides entrepreneurs with funding ($250K), strategic and operational support, co-working space, and access to a top-tier network of partners, academic medical centers, and clinicians.

20.1.2 Profiles of Select Digital Health Venture Capital Firms

20.1.2.1 Sequoia

Overview

Investments: 1149 Investments in 661 Companies

Exits: 54 IPOs & 146 Acquisitions

Founder: Don Valentine

Headquarters: Menlo Park, CA

Funds raised: $4.12B

Category: Venture capital

Description: Sequoia helps founders turn imaginative ideas into enduring companies.

Website: http://www.sequoiacap.comInvestor

Employees: 134

Valuation: $78.9M

Investor Details

Founded: November 1, 1972

Contact: (650) 854-3927

Type: Venture Capital that does seed, early stage venture, and later stage venture investments

Investment size: $1–100M

Sectors: Energy, Enterprise, Financial, Healthcare, Internet, Mobile

Regions: China, India, Israel, United States

The Sequoia team helps a small number of daring founders build legendary companies. We spur them to push the boundaries of what’s possible. In partnering with Sequoia, companies benefit from an unmatched community and the lessons learned over 40 years working with Steve Jobs, Larry Ellison, John Morgridge, Jerry Yang, Elon Musk, Larry Page, Jan Koum, Brian Chesky, Drew Houston, Adi Tatarko, and Jack Dorsey among many others.

20.1.2.2 New Leaf Venture Partners

Overview

Investments: 109 Investments in 59 Companies

Exits: 12 IPOs & 9 Acquisitions

Founder: Philippe Chambon

Headquarters: New York, NY

Funds raised: $1.03B

Description: Healthcare-focused VC firm

Website: http://www.nlvpartners.com

Employees: 16

Valuation: $75M

Investor Details

Founded: 2005

Aliases: Sprout Group

Contact: info@nlvpartners.com

Type: Private equity firm that does early stage venture, later stage venture, private equity, and debt financing investments

Sectors: Biotechnology, Healthcare, Pharmaceuticals

Region: United States

New Leaf Venture Partners is a venture capital firm that invests primarily in healthcare technology. The company typically focuses on later stage biopharmaceutical products, early stage medical devices, and laboratory infrastructure technologies.

The New Leaf Ventures (NLV) team has been built over a decade, originating within Sprout Group, the venture capital affiliate of Credit Suisse First Boston. Sprout Group was formed in 1969 and has historically been one of the leading venture capital firms in the country.

20.1.2.3 Trident Capital

Overview

Investments: 185 Investments in 107 Companies

Exits: 6 IPOs & 42 Acquisitions

Founders: Donald Dixon, John Moragne, Don Dixon

Headquarters: Palo Alto, CA

Funds raised: $750M

Description: Trident Capital is a venture capital and growth equity firm investing in software, business services, and internet-focused companies.

Website: http://www.tridentcap.com

Employees: 15

Valuation: $51.4M

Investor Details

Founded: 1993

Contact: info@tridentcap.com

Type: Venture capital that does early stage venture, later stage venture, and debt financing investments

Region: United States

Trident Capital is a venture and growth equity firm investing in Software, Services and Internet. Trident focuses on companies addressing the major technology challenges facing today’s enterprise, including cloud computing, IT security, digital monetization, and healthcare IT. We target growth equity investments up to $30 million in rapidly growing companies, often as the first institutional investor. Founded in 1993, Trident has raised $1.9 billion of capital and is currently investing its $362 million Fund VII. Investing region—North America and are headquartered in Palo Alto, CA.

20.1.2.4 OrbiMed

Overview

Investments: 166 Investments in 112 Companies

Exits: 36 IPOs & 22 Acquisitions

Headquarters: New York, NY

Funds raised: $4.27B

Description: OrbiMed is a healthcare-dedicated investment firm, with approximately $5 billion in assets under management.

Website: http://www.orbimed.com

Employees: 80

Valuation: $97.3M

Investor Details

Founded: 1989

Contact: info@orbimed.com

Type: Private equity firm that does early stage venture, later stage venture, private equity, debt financing, and post-IPO debt investments

Sectors: Biotechnology, Healthcare, Health and Wellness

Region: United States

OrbiMed is a healthcare-dedicated investment firm, with approximately $5 billion in assets under management. OrbiMed’s investment advisory business was founded in 1989 with a vision to invest across the spectrum of healthcare companies: from private start-ups to large multinational companies. OrbiMed manages the Caduceus Private Investments series of venture capital funds and a family of public equity investment funds.

20.1.3 Profiles of Select Digital Health Publically Listed Companies

20.1.3.1 Athenahealth

Overview

Acquisitions: 5 Acquisitions

IPO/Stock: Went public on Sept. 20, 2007 (ATHN)

Headquarters: Watertown, MA

Description: Athenahealth provides cloud-based services for physician practices, such as electronic health records and practice management.

Founder: Todd Park

Category: Enterprise software

Website: http://www.athenahealth.com

Employees: 3676

Private company valuation: $241M

Public company valuation: $5.28B

Company Details

Founded: 1997

Contact: (800) 981-5084

Athenahealth is a leading provider of internet-based business services for physician practices. The Company’s service offerings are based on proprietary web-native practice management and electronic health record (EHR) software, a continuously updated payer knowledge-base, integrated back-office service operations, and live patient communications services.

20.1.3.2 Castlight Health

Overview

Investments: 2 Investments in 1 Company

IPO/Stock: Went public on March 17, 2014 (NYSE:CSLT)

Headquarters: San Francisco, CA

Description: Castlight Health develops a web application that provides information to its users about healthcare costs, usage, coverage, and choices.

Founders: Todd Park, Bryan Roberts, Giovanni Colella

Category: Healthcare

Website: http://www.castlighthealth.com

Employees: 466

Private company valuation: $44.3M

Public company valuation: $9.6B

Company Details

Founded: 2008

Aliases: Castlight Health, Inc., Ventana Health Services, Inc.

Contact: info@castlighthealth.com|(415) 829-1400

Castlight Health, Inc. develops a Web application that provides consumers with clarity around their healthcare costs, usage, coverage, and choices. It enables employers and employees to make choices and lower costs. The company’s products are used in various visionary companies in the United States. The company was founded in 2008 and is based in San Francisco, California.

20.1.3.3 Cerner

Overview

Acquisitions: 1 Acquisition

IPO/Stock: Went public on Dec. 12, 1986 (CERN)

Headquarters: Kansas City, MO

Description: Cerner Corporation is a supplier of healthcare information technology solutions, services, devices, and hardware.

Category: Software

Website: http://www.cerner.com

Company Details

Founded: 1979

Contact: 1(816) 221-1024

Employees: 22,220

Private company valuation: $25M

Public company valuation: $837M

Cerner Corporation is a supplier of healthcare information technology solutions, services, devices, and hardware. Cerner solutions optimize processes for healthcare organizations. These solutions are licensed by 9300 facilities globally, including more than 2650 hospitals; 3750 physician practices 40,000 physicians; 500 ambulatory facilities, such as laboratories, ambulatory centers, cardiac facilities, radiology clinics, and surgery centers; 800 home health facilities; 40 employer sites and 1600 retail pharmacies. It operates in globally, which includes revenue contributions and expenditures linked to business activity in the US, Argentina, Aruba, Canada, Cayman Islands, Chile, Puerto Rico, Saudi Arabia, Singapore, Spain, and the United Arab Emirates. On May 23, 2011, it acquired Resource Systems, Inc. On October 17, 2011, it acquired Clairvia, Inc.

20.1.3.4 Editas

Overview

IPO/Stock: Went public on Feb. 3, 2016 (NASDAQ:EDIT)

Total equity funding: $210M in 3 Rounds from 17 Investors

Headquarters: Cambridge, MA

Description: Editas Medicine is engaged in discovering and developing a novel class of genome-editing therapeutics.

Founders: Feng Zhang, Jennifer A. Doudna, George Church, J. Keith Joung

Categories: Healthcare, Biotechnology

Website: http://www.editasmedicine.com

Company Details

Founded: 2013

Contact: info@editasmed.com|(617) 401-9000

Employees: 66

Private company valuation: $50M

Public company valuation: $16M

The company’s mission is to translate its genome-editing technology into a novel class of human therapeutics that enable precise and corrective molecular modification to treat the underlying cause of a broad range of diseases at the genetic level. The company has generated substantial patent filings and has access to intellectual property covering foundational genome-editing technologies, as well as essential advancements and enablements that will uniquely allow the company to translate early findings into viable human therapeutic products.

20.1.3.5 Fitbit

Overview

Acquisitions: 1 Acquisition

IPO/Stock: Went public on June 19, 2015 (NYSE:FIT)

Headquarters: San Francisco, CA

Description: Fitbit offers compact, wireless, wearable sensors that track a person’s daily activities in order to promote a healthy lifestyle.

Founders: James Park, Eric Friedman

Categories: Healthcare, Hardware, Fitness, Personal Health, Wearables

Website: http://www.fitbit.com

Company Details

Founded: May 1, 2007

Contact: info@fitbit.com

Employees: 980

Private company valuation: $26.6M

Public company valuation: $969.7M

Fitbit inspires people to exercise more, eat better, and live healthier lifestyles. The company is developing an ultra-compact wireless wearable sensor, called the Fitbit Tracker, which automatically tracks data about a person’s activities, such as calories burned, sleep quality, steps, and distance.

The Fitbit Tracker collects activity data automatically while it is worn all day by the user. The collected data is wirelessly uploaded to a website where the wearer can see their data and track their progress toward personal goals.

20.1.3.6 Health stream

Overview

IPO/Stock: Went public on Apr. 20, 2000 (HSTM)

Total equity funding: $2.4M in 1 Round

Headquarters: Nashville, TN

Description: HealthStream, Inc. (HealthStream) provides internet-based learning and research solutions to meet training, information, and education needs.

Category: Enterprise software

Website: http://www.healthstream.com

Company Details

Founded: 1990

Contact: info@healthstream.com

Employees: 972

Private company valuation: $15.8M

Public company valuation: $463.5M

HealthStream (NASDAQ:HSTM) is dedicated to improving patient outcomes through the development of healthcare organizations’ greatest asset: their people. Healthstream’s unified suite of solutions is contracted by healthcare organizations in the U.S. for workforce development, training and learning management, talent management, credentialing, provider enrollment, performance assessment, and managing simulation-based education programs. Healthstream’s patient experience/research solutions provide valuable insight to healthcare providers to meet CAHPS requirements, improve the patient experience, engage their workforce, and enhance physician alignment.

20.1.3.7 Illumina

Overview

Investments: 9 Investments in 8 Companies

Exits: 1 Acquisition

Founders: David R. Walt, Larry Bock, John Stuelpnagel

Headquarters: San Diego, CA

Description: At Illumina, the goal is to apply innovative technologies and revolutionary assays to the analysis of genetic variation and function.

Website: http://www.illumina.com

Employees: 4600

Private company valuation: $37.6M

Public company valuation: $241.9M

Investor Details

Founded:

Accelerator that does early stage venture and later stage venture investments. At Illumina, the goal is to apply innovative technologies and revolutionary assays to the analysis of genetic variation and function, making studies possible that were not even imaginable just a few years ago. These studies will help make the realization of personalized medicine possible. With such rapid advances in technology taking place, it is mission critical to have solutions that are not only innovative, but flexible, scalable, and complete with industry-leading support and service. As a global company that places high value on collaborative interactions, rapid delivery of solutions, and prioritizing the needs of its customers, they strive to meet this challenge.

20.1.3.8 Teladoc

Overview

Acquisitions: 3 Acquisitions

IPO/Stock: Went public on July 1, 2015 (NYSE:TDOC)

Headquarters: Purchase, NY

Description: Teladoc is a telehealth services company providing medical care for adults and children via video conferencing and telephone consultations.

Founder: George Byron Brooks

Categories: Healthcare, mHealth

Website: http://www.teladoc.com

Company Details

Founded: 2002

Aliases: 835-2362835-2362

Contact: marketing@teladoc.com | (800) 835-2362

Employees: 219

Private company valuation: $36.4M

Public company valuation: $194.9M

Teladoc, Inc. (NYSE:TDOC) delivers on-demand healthcare anytime, from almost anywhere via mobile devices, the Internet, secure video, or phone. Teladoc provides consumers with access to its network of more than 2650 board-certified, state-licensed physicians and behavioral health professionals who provide care for a wide range of non-emergency conditions. Teladoc is certified by the National Committee for Quality Assurance (NCQA) for its physician credentialing process.

20.1.3.9 WebMD

Overview

Acquisitions: 6 Acquisitions

IPO/Stock: Went public on Sep. 29, 2005 (WBMD)

Headquarters: New York, NY

Description: WebMD provides timely and credible health information and services to consumers and healthcare professionals.

Founder: Ann Mond Johnson

Category: Curated web

Website: http://www.webmd.com

Company Details

Founded: 1996

Employees: 1638

Private company valuation: $53.2M

Public company valuation: $3.47B

WebMD is the leading provider of health information and services to consumers and healthcare professionals. WebMD works closely with CBS News and provides health news and features for CBS News programs. WebMD helps consumers take an active role in managing their health by providing objective healthcare information and lifestyle information.

20.1.4 Profiles of Select Digital Health Private Companies

20.1.4.1 DrOnDemand

Overview

Headquarters: Skokie, IL

Description: DocOnDemand delivers enterprise-wide telemedicine services for health systems.

Category: Healthcare

Website: http://www.docondemand.com/

Company Details

Founded: Dec. 1, 2010

DrOnDemand delivers enterprise-wide telemedicine services for health systems. It helps health systems create, expand, complement, and replace services with online delivery alternatives and achieve significant outreach, cost, and customer service gains.

20.1.4.2 eClinicalWorks

Overview

Headquarters: Westborough, MA

Description: eClinicalWorks provides ambulatory clinical information systems such as electronic medical records systems and community applications.

Category: Software

Website: http://www.eclinicalworks.com

Company Details

Founded: 1999

Contact: sales@eclinicalworks.com

Employees: 2237

Private company valuation: $39.7M

Public company valuation: $27.1M

eClinicalWorks is a privately held, leader in ambulatory clinical solutions. Its solutions extend the use of electronic health records beyond practice walls with the latest technologies and create community-wide records. The company has an established customer base of more than 50,000 providers and 225,000 plus medical professionals across all 50 states. Revenues for 2009 exceeded $100 million.

20.1.4.3 MEDtrip

Overview

Total equity funding: $500K in 1 Round

Most recent funding: $500K Seed on Nov. 4, 2012

Headquarters: Lakewood, CO

Description: MEDtrip is the world’s premium medical tourism portal.

Founders: Jason Coppage, Greg Mogab

Category: Healthcare

Website: http://www.MEDtrip.com

Company Details

Founded: Nov. 1, 2012

Aliases: HealthcareAbroad.com

Contact: info@medtrip.com | (720) 257-5277

Employees: 11

Private company valuation: $5M

MEDtrip is a comprehensive and unbiased directory connecting patients directly to clinics and hospitals worldwide. MEDtrip was created to help patients receive the best care possible, anywhere in the world. It is run by an amazing team made up of talented health and technology professionals.

20.1.4.4 Practice Fusion

Overview

Acquisitions: 2 Acquisitions

Total equity funding: $155.02M in 10 Rounds from 29 Investors

Headquarters: San Francisco, CA

Description: Practice Fusion provides a free, web-based electronic health record (EHR) system and medical practice management technology to physicians.

Founders: Ryan Howard, Matthew Douglass

Categories: Medical, Healthcare

Website: http://www.practicefusion.com

Company Details

Founded: July 10, 2005

Contact: (415) 346-7700

Employees: 358

Private company valuation: $13.6M

Public company valuation: $24.3B

Practice Fusion provides a free, web-based EMR system to physicians. With medical charting, scheduling, e-prescribing (eRx), lab integrations, referral letters, Meaningful Use certification, unlimited support, and a Personal Health Record for patients, Practice Fusion’s EMR software addresses the complex needs of today’s healthcare providers and disrupts the health IT status quo. Practice Fusion is the fastest growing electronic medical record community in the country with more than 150,000 users serving 50 million patients. Practice Fusion’s mission is to connect doctors, patients, and data to drive better health and save lives. The mission drives company culture and passion is the biggest requirement.

20.1.4.5 Theranos

Overview

Total equity funding: $88.4M in 6 Rounds from 5 Investors

Most recent funding: Private equity on June 12, 2014 (undisclosed amount)

Description: Theranos’ mission is to make actionable health information accessible to everyone at the time it matters.

Founder: Elizabeth Holmes

Categories: Biotechnology, Healthcare, Health Diagnostics

Website: http://www.theranos.com

Company Details

Founded: 2003

Aliases: RealTime Cures

Contact: info@theranos.com

Employees: 141

Private company valuation: $27.5M

Public company valuation: $22.1M

Headquartered in Palo Alto, Theranos, Inc. is a consumer healthcare technology company. Theranos’ clinical laboratory offers comprehensive laboratory tests from samples as small as a few drops of blood at unprecedented low prices. Founded in 2003 by Elizabeth Holmes, Theranos’ mission is to make actionable health information accessible to people everywhere in the world at the time it matters, enabling early detection and intervention of disease, and empowering individuals with information to live the lives they want to live.

20.1.4.6 WellDoc

Overview

Total equity funding: $54.93M in 6 Rounds from 9 Investors

Most recent funding: $7.5M Series B on March 1, 2016

Headquarters: Baltimore, MD

Description: WellDoc is a health care technology company that develops solutions to transform the management of chronic disease.

Founders: Ryan Sysko, Suzanne Sysko Clough, Yves Nordmann

Categories: Medical, Healthcare, Real-Time

Website: http://www.welldoc.com

Company Details

Founded: March 1, 2005

Aliases: Welldoc Communications, Inc., WellDoc, Inc.

Contact: (443) 692-3100

Employees: 72

Private company valuation: $8.8M

Public company valuation: $45.6B

WellDoc is developing the next generation of technology solutions to support chronic disease management. They do integrating clinical, behavioral, and motivational applications with everyday technologies, like the internet and cell phone, to engage patients and healthcare providers in ways that dramatically improve outcomes and significantly reduce healthcare costs.

20.1.4.7 ZocDoc

Overview

Total equity funding: $223M in 4 Rounds from 11 Investors

Most recent funding: $130M Series D on August 20, 2015

Headquarters: New York, NY

Description: ZocDoc is the beginning of a better healthcare experience for millions of patients every month.

Founders: Cyrus Massoumi, Oliver Kharraz, Nick Ganju

Categories: Medical, Dental, Healthcare

Website: http://www.zocdoc.com

Company Details

Founded: September 18, 2007

Contact: service@zocdoc.com | (855) 962-3621

Employees: 773

Private company valuation: $27.5M

Public company valuation: $101.8M

ZocDoc is the tech company at the beginning of a better healthcare experience. Each month, millions of patients use ZocDoc to find in-network neighborhood doctors, instantly book appointments online, see what other real patients have to say, get reminders for upcoming appointments and preventive checkups, fill out their paperwork, and more. With a mission to give power to the patient, ZocDoc’s online marketplace delivers the accessible and simple experience patients expect and deserve. ZocDoc is free for patients and available across the United States via ZocDoc.com or the ZocDoc app for iPhone and Android.