The Digital Health industry is red hot, but is it a good investment?

It’s a perfect time to be in the Digital Health Industry. Daily deal sites and social media apps may be still be getting some press, but Digital Health is finally going mainstream and more importantly it’s getting the investment dollars. Wearable health tracking devices and “quantified self” applications are beginning to mature and find an enthusiastic consumer market at the same time that mobile health and big data are fundamentally changing the way healthcare providers deliver care.

Rock Health VC Funding Q3 2012

But with all this hype, is it a good time to invest in the Digital Health space? Is it too late or still way to early?

I think we’re just getting started. Here’s why:

The established players are making good money

Growth in legacy systems has been sighted as “abysmal” by a number of sources this year. Large complicated EHR systems are often characterized as out-dated, not aligned with the emerging model of healthcare based on patient outcomes and frankly, just really expensive. And yet the numbers tell a different story as old guard EHR companies such as Cerner and McKessson have seen incredible growth over the past year due mostly to innovation outside of the traditional EHR sale as well as strategic acquisitions.

Cerner Stock Performance 2012

The outliers

Big data, genomics and translational medicine are going to require more and more computing horse power. This opportunity alone is going to bring focus to the healthcare market from the traditional IT companies that can provide the hardware and software needed to build and deliver on the Big Data promise. The big IT vendors in this space with deep pockets and huge cash reserves are already buying up healthcare start-ups for both technology and talent acquisitions to go after these emerging markets. This is creating successful exits for a number of startups, which in turn puts cash back into the hands of the very entrepreneurs creating the growth. It’s also driving industry consolidation for more established long-term players giving them access to greater resources and markets.

The up and comers

Beyond the growth rates of the established players, there is an increasing global trend towards outcome-focused healthcare, which is putting pressure on these large vendors to cut costs, improve efficiencies, demonstrate clear and quantifiable results and do it quickly. The problem is these multi-billion dollar vendors are just not designed to deliver the kind of rapid and ground breaking innovation required by the market today. This is what is opening up plenty of new opportunities for startups who can innovate, iterate and aren’t held back supporting legacy systems. Bottom line, there’s markets in everything and plenty of share for everyone so rather than compete with the big players, there is plenty of room below the radar.

The consumer market

Wearable technology, quantified self and mHealth technology focused start-ups are popping up all over the place. Take Fitbit as a great example. Backed by Foundry Group, True Ventures and SoftTech VC, Fitbit makes small wearable sensors that collect data about your physical activity during the day and with the help of an armband your sleep activity during the night. They also make a scale that collects weight, BMI and body mass data. All this data is synced via WiFi to a portal on the Internet where you can crunch your own personal health data in real time, set health goals and monitor your progress. The real killer part of the application is that unlike other health, fitness and diet solutions with Fitbit you can see results online and in real time.

These startups are tapping into a completely consumer based business model that relies on a combination of product sales a subscription services to drive revenues with a great deal of upside potential to include other personal monitoring devices such as blood pressure and glucose monitors. This new market alone has enormous potential and as startups begin to built out these siloed platforms, consolidation and acquisitions are bound to drive further interest and valuations.

Fitbit

Incubators and Accelerators oh my!

You can’t walk more than a few steps with your quantified-self device anywhere in North America without tripping over a new Digital Health Incubator or Accelerator. And they’re all producing some pretty amazing stuff. Some of my favourites to watch are Rock Health, MaRS, Blue Print Health, StatUp Health, The New York Digital Health Accelerator, Healthbox. Unlike other Incubators and Accelerators in other niche market, Digital Health a really the untapped startup opportunity of our generation and these folks are pursing it with a level of ferocity that puts us Dot Com veterans to shame.

Conclusion…

So am I bullish on the Digital Health Market? Yep. I can’t think of a better place to invest both my time and money. I think we are still in the very early stages though. That means as an investor there is a great deal of risk that needs to be managed, but also a great deal of opportunity. The best part is, unlike the Dot Com days, these new startups are driven by not only profits but a real desire to help people live healthier lives. That alone will attract a new level of commitment and talent to this market.



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