Despite the seemingly boundless opportunity for health IT, a bubble similar to the tech boom of the 1990s is forming, investor and entrepreneur Anne DeGheest warns in an interview with the Wall Street Journal.
With "feverish activity and high valuations comes the danger of a bubble," DeGheest says. Now, a number of health entrepreneurs without solid business plans are trying to raise money from investors.
A lot of money is going into these HIT companies from Series A and angel investors, DeGheest says. "When it comes time for these companies to raise a larger, Series B round, they are going to have to answer a lot of tough questions about their business plans. Many will not have answers to those questions, and some of these companies are going to fail."
So what will investors ask at the Series B level? About value proposition, pain points a company is trying to solve in the market and the cost of customer acquisition, for starters.
"At the Series B level, we would ask, 'Why is this data actionable? Who is meant to take action on the data? How do you measure the impact of this data?'" DeGheest says.
She adds that the environment mirrors that of the 90's dot-com boom because everyone has a product you can demo. Also, she says, investors are providing a lot of "bridge loans"--which DeGheest calls a "pier to nowhere."
As reported earlier this month, total digital health funding in 2013 reached $1.92 billion, according to an end-of-year report from Rock Health, a digital health startup accelerator. That figure represents 35 percent growth since 2012, and more than 100 percent growth since 2011. Overall, 195 digital health deals above $2 million took place in 2013, according to the report.
In July, it was reported that VC funding for health IT in 2013 was already almost equal to 2012's total, with $623 million raised in the second quarter.
But is digital health all talk and no action, with a lot of duplication? One Forbes contributor said yes, writing that he was fed up with one wearable technology invention after another last fall.
To learn more:
- read the Wall Street Journal article