July 02, 2013|Categories: More Disruption Please
Just like the tide, the Venture Capital (VC) market ebbs and flows. It’s not nearly as predictable, but there certainly are signs that a “high tide” of funding is upon us. Nearly half a billion dollars was raised in VC funding for health information technology (HIT) in just the first quarter of 2013. According to a 2013 Mercom report 1 on HIT funding and mergers and acquisitions, it wasn't just the dollar amount that exploded in Q1: More than 100 funding deals were completed, compared to 51 in the last quarter of 2012, and just 30 in Q1 of last year.
Given the heightened (and growing) interest by VC investors in the HIT space, I’d like to offer a few tips on how to best position your company to “ride the wave” to successful fundraising:
- Target Proven Demand. Focus your product or service on markets with strong underlying fundamentals and relevance to current industry trends. The majority of the recent funding in the HIT space has gone to consumer-focused technologies, with mobile health, telehealth, and personal health leading the way. By keying in on markets with existing and proven demand, you are more like to excite investors about your company’s growth prospects. VCs need to understand the market opportunity before writing a check.
Ateet Adhikari, Director of Healthbox, a premier business accelerator program in the healthcare industry, opines, “A ‘market opportunity’ isn't just successfully completing one pilot. Rather, it is turning that one pilot into several, those several pilots into one paying customer, and that one paying customer into many paying customers...”
- Meaningfully Integrate with the Patient Record. In this age of increased interoperability, designing your product in a way that improves the patient record is key for long-term success. It is difficult to get individual consumers to pay, but large companies and payers are willing to spend for a more complete patient record.
- Be Passionate. No matter how good your sales pitch may be, VCs want to invest behind management teams that are truly passionate about their company’s vision and mission. Keep this in mind when designing your product or deciding which market to enter. Since much of VC funding is about “telling the story,” having a strong and clear mission that you personally care about can help the story resonate stronger with investors.
- Choose Carefully. All investment money is not the same. Do your due diligence and make an informed decision about your preferred funding source. Many VC firms will try to make their money fast and then exit. Often, this entails changing a business model to accelerate growth and revenue. This may not be the best play for the longevity of your company. Thus, before choosing a partner, you must make sure they have a proven knowledge of the space and share your vision.
- Build Awareness. Align your company with organizations that are in constant contact with the venture community (e.g. incubators, accelerator programs, etc.) and leverage these groups to provide valuable introductions to VCs. It is also important to build brand awareness and create a “buzz” around your company or product by actively engaging in social media, attending conferences and entering business contests.
Although the VC market for HIT is experiencing exponential growth, there is no such thing as easy money. Develop your strategy and stay true to your vision, and you will be well on your way to not only becoming a part of next quarter’s Mercom report, but also a company that is helping to save lives.
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1Mercom Capital, 2013 Q1 Healthcare IT Funding, M&A Report– Mercom Capital, 04/2013.