Health IT startups regroup as looming Obamacare repeal scares off investors

By Jessica Davis
08:42 AM
Bootstrapped firms and those companies directly connected to the insurance market are facing the greatest challenges, as funding for these types of startups has fallen the lowest since 2011.

Some health technology startups are shifting the focus of their sales pitches and products in response to political uncertainty and the unknown fate of the Affordable Care Act.

Firms with limited resources, those directly tied to the insurance market or companies that sell to hospitals facing potential Medicaid cuts are those with the greatest challenges, investors and others told Wall Street Journal.

Some startups are moving toward direct sales to consumers and spending less time on sales to providers, while others are focusing on sales efforts to large hospitals that are often early adopters of new technology. Small, private practices are struggling with the uncertainty of changes in healthcare reimbursement law.

For example, Seattle-based Pillsy -- a Bluetooth-enabled smart pill bottle manufacturer -- is focusing on online sales and in-store to pharmacies instead of marketing to providers. It’s spending more of its funding on digital advertising and hired a public relations firm, instead of sending staff to conferences, said Pillsy CEO Jeff LeBrun.

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“One of the big advantages of a startup is to be able to pivot and fall into new opportunity,” Hubert Zajicek, chief executive officer of Health Wildcatters LLC, a Dallas-based healthcare startup accelerator, told WSJ. “But this is change that has spelled more uncertainty. That is not change you can prepare for.”

To make matters worse, only 124 digital health startups received funding during the first quarter of 2017 -- the lowest quarterly total since 2011, according to StartUp Health. The amount of raised funding was similar to last year.

The election raised the funding bar, said Anne DeGheest, founder of San Francisco-based HealthTech Capital. Investors are “asking for a higher level of sales and market validation.”

Investors provided $4.9 billion in funding for healthcare startups during 2017’s first quarter, which was up $3.6 billion in 2016, Dow Jones VentureSource found. About 70 percent of that was funneled into medical device companies and drug development, but investors are more cautious about digital health companies.

Despite any political turmoil, the demand for healthcare tech able to cut costs and improve care quality will remain strong. GNYHA Ventures President Lee Perlman said that hospitals are still investing in new technologies, as well.

However, “in the end, it will be a scalability issue. If forced to choose between providing basic patient care and new investment, basic patient care will win,” said Perlman.

Twitter: @JessieFDavis
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