SecondMarket plans fund for StartUp Health inductees

By: Jonah Comstock | Dec 12, 2012        

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Steven Krein, co-founder of StartUp Health

Steven Krein, co-founder of StartUp Health

SecondMarket, a secondary market investment advisory company, is partnering with incubator StartUp Health this month to make small accredited investors more aware of the opportunities in the digital health space, and to give make a chance to fund some of StartUp’s inductees.

StartUp Health co-founder Steven Krein described StartUp Health as “an academy for health and wellness entrepreneurs” in an interview with MobiHealthNews earlier this year.

“We use the term academy specifically because we provide a longterm program for the life of the entrepreneur’s startup,” he said. “What we have learned — being entrepreneurs ourselves — is that the real work begins after you get customers and after you get funding.”

SecondMarket is best know for trading in private Facebook shares before the company went public this past summer. Now they’re focusing on acquainting accredited investors with what they call “next generation investments.” Part of that strategy is an education program where the company devotes each month to educating investors about a different space.

The focus for December was health tech, and SecondMarket partnered with StartUp Health to produce a webinar for interested investors that covered trends in digital health.

According to GigaOM, StartUp Health is offering SecondMarket investors the opportunity to contribute to a planned $7.5 million innovation fund to help support 100 digital health companies that will participate in StartUp Health’s accelerator program. The fund will own between 2 and 10 percent equity in the companies it supports.

In the webinar, StartUp Health co-founders Steven Krein and Unity Stoakes focused on the concept of creative destruction – a term coined by Austrian Economist Joseph Schumpeter and recently applied to healthcare by Dr. Eric Topol in his book “The Creative Destruction of Medicine.” It refers to a point of transformation that occurs when an existing market becomes too large and set in its ways to foster innovation and begins to fall apart. As StartUp Health chairman Gerald Levin put it in the webinar, “the big ships just can’t turn around fast enough.”

“There’s never been a more interesting time to invest in health and wellness,” said Stoakes. “That’s because healthcare is being completely reimagined. We are at the beginning of what we believe will be an epic decade of innovation and progress.”

Bob Kocher, a partner at Venrock, the Venture Capital arm of the Rockefeller Foundation, outlined the ways the health field is becoming ripe for innovation. He said the healthcare market is growing, because of a combination of more people qualifying for coverage under the Affordable Care Act, the population aging, and an increasing number of people with chronic conditions.

Kocher was also optimistic about a change in payment models – from a system where health care providers are paid for their time to a system where patients and providers share risks and rewards based on outcomes for patients. Kocher also talked about downward pricing pressure and physician shortages that would encourage hospitals to look for ways to increase labor productivity. Technologies that help hospitals do more with fewer people will be great places to invest, he suggested.

Finally, employers are changing their health priorities to focus on prevention, fitness, and wellness to drive down eventual health costs.

These trends have already spurred increased venture capital for health tech companies. According to StartUp Health figures presented at the webinar, more than $3.5 billion has been invested in digital health since 2010 – a figure that doesn’t include legacy medical technology, pharmaceuticals, or life sciences companies. The way that capital is distributed has also been changing in a way that suggests startups can do more with less. The average deal size in the space dropped from $10.8 million in 2011 to $5.1 million in 2012, even though the total amount invested went up. The space saw 219 seed deals in 2012, compared with 131 in 2011.

“For some time in the last several years there was a reluctance [on the part of investors] to really get involved,” said Levin. “The regulation seems daunting, the payment models seem complicated. But as you heard, it’s all coming together now.”