How many digital health startups will fail?

New research says more than half
By Erin McCann
10:54 AM
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Despite digital health's record breaking VC growth last year – and more recent reports showing it hasn't slowed down in 2015 either – the percentage of these startups that actually make it might surprise you.

According to new research conducted by Accenture, in fact, more than half of all digital health startups are likely to fail within two years following their launch. Not the most encouraging outlook for those those fledgling companies that raked in a record $4.1 billion for 2014.

But as Accenture officials point out, there's huge opportunity and value for prospective buyers in what they're calling the "zombie" startups.

[See also: Despite slowdown fears, digital health VC keeps pace.]

"Rather than discard the investment that has been made in getting sputtering start-ups off the ground, it often makes sense for healthcare stakeholders to acquire them, salvage their best people and technologies and awaken them from a zombie-like existence," said Kaveh Safavi, managing director for Accenture's global healthcare business, in an Aug. 13 statement detailing report findings.

"Many digital start-ups that are dying or in danger of failure have developed solutions that can help traditional and non-traditional healthcare companies achieve their goals," he added.

Those digital health startups at risk for failing could benefit potential corporate buyers, according to Accenture. Why? Three big reasons.

First, they represent an opportunity to bring on top technical talent with serious innovation capabilities. This "acqui-hiring" is already a common practice at Silicon Valley companies such as Google and Apple, researchers point out. 

[See also: 2014 venture cash: Digital health nails it.]

Second: "Greater innovation," according to Accenture. Acquiring one of these startups means securing intellectual property and patents. In fact, its researchers found a potential 1,700 patents across the 900 startups it analyzed in the report.

And the last big reason? The opportunity to build on and expand current platforms and technologies of the buying company.

But if there's serious value in healthcare mergers and acquisitions, how many startups are actually being purchased? Digital health seed fund Rock Health tracked 95 merger and acquisition deals in 2014, totaling to more than $20 billion in disclosed transactions.

How do the fail rates for digital health startups stack up against other industries? Much of the data out there estimates that between 30 percent and 90 percent of all startups with fail, in fact. So healthcare is ahead of the game against others.