Veteran VC Says Beware of Health IT Bubble: Not Enough ‘Actual Business Plans’
Timothy Hay from the Wall Street Journal wrote a great article after he interviewed me.
Ms. DeGheest has invested extensively in medical devices and in health-related information technology, and she said she learned in the ‘90s to read the signs of an economic bubble. She sees some of those signs today, telling Venture Capital Dispatch of a potential “Series B crunch” as a number of health entrepreneurs without solid business plans try to raise money from investors.
Anne DeGheest | 04 February 2014
It wasn't that long ago that money flowed steadily to entrepreneurs who dreamt up whiz-bang medical devices.
Hospitals souped up their surgical suites with robots or high-tech radiation machines for cancer treatment. Cost wasn't an issue: They just got passed along to insurance companies, who passed them on to employers and patients. But after the Great Recession hit and the 2010 health law passed, the financiers behind the medical arms race started to rethink their investment calculus. "If you come in with [a device] that's 10 percent better and twice as expensive, it's hard to get anyone to care," said Bryan Roberts, a Palo Alto, Calif.-based venture capitalist at Venrock, a Silicon Valley company that invests in firms working on health services, medical devices and drugs.
"The changes in the health system are rocket fuel for entrepreneurs," says Roberts' partner Bob Kocher. He is a former Obama health policy adviser who was hired by Venrock in part to capitalize on the expertise he cultivated working on the law in the White House. The share of venture dollars flowing to seed and early-stage investments in biotechnology and medical devices has plummeted since 2007, when investors pumped $3.6 billion into 332 deals in which a price was disclosed, according to data compiled for Kaiser Health News by FactSet Research Systems. Overall venture investing declined by nearly one-third as the economic recession set in. Kocher is eyeing businesses that do things like help hospitals keep patients from returning to the hospital with complications soon after treatment — a big-ticket cost that the health law will now tie to new penalties. Like other investors, he also anticipates that many people who gain coverage under the law will face high insurance deductibles. Anne DeGheest | 09 March 2012
Anne DeGheest | 09 March 2012