How many mHealth startups make $10M a year?

By: Brian Dolan | Dec 15, 2011        

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Brian Dolan, Editor, MobiHealthNews“The entrepreneurs in the mHealth space tend to be young and often new to healthcare, though of course there are the exceptions-those few old-timers who remember the days before iPhones were issued upon one’s birth,” Lisa Suennen, a founding partner at investment firm Psilos Group, wrote last week in a widely syndicated (must-read) column about her experiences at the mHealth Summit. “The young upstarts are full of energy and absolutely certain that their product or service will be the one to change the healthcare system for the better. God knows some of them will be right.”

“Hanging around these people can be very energizing and they are surely of a different temperament than those who preside over the traditional healthcare IT companies,” Suennen writes. “These entrepreneurs are looking at healthcare unfettered by the unhelpful customs and disincentives of the past. They are not weighted to the earth by how things have always been done in healthcare… It can be refreshing as hell to hear their stories.”

I read Suennen’s argument here as a tamer, more constructive version of the one our own Neil Versel penned a few weeks back: Silicon Valley often misses the point of healthcare. And I agree that the “young” and “often new” characterization is true for many of the Silicon Valley-based startups that have recently sprung up, but it’s not true for the majority of attendees (or even companies exhibiting) at the mHealth Summit last week. My impression was that the younger, new-to-healthcare group was present at the startup pavilions, but not so much elsewhere. As Suennen said — I’m glad they were present and their “energizing” and “refreshing” perspectives are much needed in healthcare.

Still, it’s unlikely that they’ll change healthcare on their own. As Chilmark Research’s John Moore pointed out in his (also must-read) write-up following the event, many of the larger, incumbent HIS vendors did not exhibit at the mHealth Summit event. Moore wondered about the reasons he left the event with a “ho hum” feeling: “Maybe it was the lack of exhibitors – where is the rest of the legacy HIT market who are all claiming to be bringing mHealth solutions to market?” According to the event’s organizers, there were actually 300 exhibitors at the event, but most of the biggest booth buyers at HIMSS’ annual event did not have a presence on the showfloor, even though HIMSS was a co-organizer of the mHealth Summit this year. The focus of the event, however, was the “use of wireless technology to improve health outcomes,” which may have been a value proposition stretch for at least some of the mobile-enabled hospital information systems (HIS) vendors exhibiting at HIMSS’ events and elsewhere.

For Suennen the lack of big HIS vendors at the event was less notable than the similarities between rising hype around mHealth and the eHealth bubble 10 years ago. She writes:

“The mHealth revolution definitely has some of the feel of the eHealth bubble of about ten years back. Companies are popping up left and right, many of which are carbon copies of each other but with a twist (“we are the newest weight loss app but ours uses an entirely different font!”). There is a frothy financing market despite the overall healthcare venture capital downturn, with these nascent companies commanding valuations that have little to do with traditional metrics (“I have no revenue but my idea is so cool that I’ll settle for nothing less than $100 million in pre-money value and that’s only if you slap down a term sheet by midnight tonight!”). Healthcare IT is hot and mHealth is en fuego.”

However, Suennen said she was unable to get anyone to name a single mHealth company that had yet achieved $10 million in annual revenue. Suennen let it drop that one of her firm’s portfolio companies, PatientSafe Solutions (formerly called Intellidot and currently headed by the founder of CardioNet), is making twice that in annual revenue.

“That doesn’t mean that the others won’t get there, however,” Suennen writes. “There is no doubt in my mind that mHealth will become a major part of the healthcare system. The question is when.”

Moore noted that mHealth may become a major part of healthcare systems elsewhere before it makes a dent in the healthcare system here in the US. The mHealth Summit is one of the few events that hosts a global discussion of mHealth. Moore writes:

“Even among some of the poorest countries, the rapid adoption of cellphones by the populace is staggering (e.g., India alone now represents 20 percent of all cellphones in use worldwide) Combine the need with very little in the way of legacy HIT infrastructure and the ubiquitous nature of cellphones and you have a ripe opportunity to redefine care delivery models.”

Just as Suennen let slip an interesting note about PatientSafe Solutions, Moore recounted a conversation he had with an executive at WellDoc: “They are currently being deployed at a number of institutions and hope to have a host of CPT codes that doctors can bill against in late 2012,” Moore writes.

So many companies in the mHealth sector are focused on new care delivery models, not just on making existing models safer, more efficient, or less costly. Sure, there’s probably a handful of companies making millions that might fall into the latter category, but many of those looking to help people better self-manage their chronic conditions are just getting to market. Clearer regulatory guidelines and perhaps reimbursement could make 2012 the year for a few of these companies to break out.

  • http://twitter.com/kyield Mark Montgomery

    Nice piece Brian,

    As a post 50 serial entrepreneur I can certainly relate to this. The challenges we faced when I was in my early 20s were nothing compared to what we are faced with today — the baby boom generation was smart, well educated, spoiled, and despite (or perhaps because of) the 60s influence, the greediest generation since the species emerged from the pond. I hate to say we in this case, so will say ‘they’–created protectionist barriers that are far more entrenched, ingenious, and resistant to change than any that came before. The technology in healthcare is actually easy in comparison to the business model challenge which is entirely dependent upon perverse incentives and misalignment with the patient and the public. Indeed like the housing and higher education bubbles, healthcare is misaligned with the rest of society and national economies, and frankly most we attempted to work with in HC in a win/win/win fashion laughed about it– ‘gotcha’, much like lock-in in enterprise software….. Technology can and is helping to chip away at the beast, but personally I am confident that it will require completely new business models–not just in technology, but in healthcare organizations, and like we are experiencing in enterprise software with @kyield:twitter , the ecosystem is aligned with the perverse business models– so it will very likely require new ecosystems from the ground up. The real opportunity is vastly MORE disruptive than most are looking at of which mhealth is just an important catalyst to IMO. .02-MM –PS I tend to agree that the type of revolutionary advances we need to see are more likely to emerge in the near term outside the U.S. due to manipulation of our political and regulatory system by incumbent special interests. Reform that must pass veto type control almost never is in hindsight–competition is the miracle worker, well understood and fiercely prevented.

  • Dlschermd

    I agree. The ecosystem needs drastically changed for more than one reason. It is obviously broken and disruptive processes, reorganization, and thinking about healthcare (not just disruptive technologies) are necessary. Technology itself won’t fix it, and mHealth proponents who think this will be highly disappointed. John Moore was spot on. The disappointment or ho-humness that I felt was not as much what reality is in the market as much as the illusions that some of these companies have. MHealth success depends on the technologies coming to healthcare at a time where fundamental changes have occurred to welcome them as a part of the solution, not as the solution itself.

  • http://blogs.forbes.com/danmunro/ Dan Munro

    Brian – good summary – and I commented over at Lisa’s blog too.  One thing I hope for in 2012?  A little less cynicism/criticism of early stage healthcare ventures.  There may be a frothiness to the early stages – but that’s exactly where we need frothiness – and exuberance.  The system we’ve inherited is wildly dysfunctional. Just how dysfunctional?  I like to use the attached graph which highlights our annual per capita spending on healthcare – relative to life expectancy (and compared with other countries).  If that’s too harsh – maybe we should just use the World Health Organization’s ranking of healthcare systems.  WHO puts the U.S. at #37 – which is just one giant step ahead of #38 – Slovenia. http://bit.ly/vrEsx9 We may not have all the answers – and not all of us will succeed – but at least a little runway is required.  Facebook started life with a fairly small investment – $500k – just 7 years ago. Early stage investing is different than later stage.  It means actually putting capital (and resources) at risk.  Making bets on companies with $10M in annual revenue isn’t taking a whole ton of risk – it’s winds up looking a lot more like banking.    

  • http://geoffclapp.blogspot.com/ Geoffrey Clapp

    I don’t think it’s about cynicism or criticism, it’s about changes in the capital market (both what’s required, and investment thesis). 

    Disclosure: I’ve been lucky enough to have Lisa/Psilos as an investor. They were amazing. I’m not going to make this a love-fest, but I’ve got nothing but good things to say. But, at the same time, I wouldn’t introduce them to many companies I work with today not because the companies are not great (they are) and not because Lisa’s not great (she is), but because the Psilos investment thesis is what it is. They are looking for a certain type of investment, and it doesn’t fit all companies at all stages. Today’s bifurcated capital markets demand, in some cases, more work from entrepreneurs to know what the thesis/comfort factor of investors really looks like. There’s more money, but also more approaches.

    So, I actually think this clarity is a good thing. Don’t you wish all investors were so open? Unlike the type of folks that let you pitch for 30 minutes, then say “Oh, we don’t do notes.” (I heard that story last week from someone, in this space)

    Healthcare is simply going through what consumer internet went through 2-3 years ago, and every once and a while the meme flares up again. This is the debate of the Dave McClure/500Startups model vs. the Mike Maples Jr/Floodgate Model (or stick in other examples, there are plenty). The ironic thing is, 500Startups and others like them are actually moving into Healthcare-ish ventures, such as Fitocracy (mostly wellness, admittedly), so you may see that part of the investment model covered by non-traditional healthcare funds.

    Honestly, the part of Lisa’s post that was most important is how damning that ABI report is (I had the same thought when it came out. It was a punch in the gut). Frankly, worst news for the market in ages. I’m disappointed no #mhealth entrepreneurs (not you Dan, don’t think it effects your space) came out and said “that number is crap” (at least that I can find). That’s one of the corporate blog posts that needs to be written. At least, that’s what I’d do.

    As always, it’s just my $.02, rambling on. Your mileage may vary :-)

  • Sunil Hazaray

    Suennen’s comments are facts. However healthcare technologies have a longer lead time to get established in the market. The use of M Health for chronic disease management poses a “ease of use” issue with elderly patients, which the tech guys have not given much thought to.

  • http://geoffclapp.blogspot.com/ Geoffrey Clapp

    In general, healthcare usability (from EMR to Mobile technology) is poor compared to consumer products, but those that are winning in their markets, or disrupting markets (especially in chronic disease management) are in fact putting design and usability first. The same evolution is happening in enterprise software/technology, where design and usability is finally being valued. I think the point you wanted to make about usability being important (and slower in healthcare than consumer) is valid, laying it at the feet of “the tech guys” is not, though. It’s still a market that is just starting to value, pay for, and develop, those things, and attract those skills to the workforce. 

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  • Rick Lee

    Brian,

    I see this duality between Lisa/John’s perception of mHealth and what I see out there as a classic “when you give me a  hammer, everything looks like a nail” prism.  People who come from the medical world refuse to acknowledge that Nike is all about mobile and all about getting people healthier.  As an mHealth player, I do think Nike’s revenues exceed $10M.  

    What mHealth really becomes is living, while integrating your health into your daily life.  Health used to be like paying bills; once a month you focussed on it.  No longer.  We can get TIMELY reminders that our blood pressure is trending up, that our weight is finally dipping, or that we’ve averaged only 4.62 hours of REM over the last week.  Some call it life.  Others call it mHealth.  What it decidedly is not is Medicine as known to hospitals, doctors and nurses, who repurposed the word health to be synonymous with medicine.

    If experts stop referring to patients, when they mean people or consumers, then we will be moving into the real mHealth world.  When health food is simply called food and “death food,” the crap sold by most large corporations to impair our health, gets regulated and harder to access (like cigarettes) then we will be living in a world where the FDA puts our health front and center in our lives and not solely within the purview of the medical establishment.

    Rick Lee, CEO
    Healthrageous

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