Study: Digital Health Startup Funding Grows as Failure Rate Accelerates

Funding for digital health startups could reach $2.5 billion in the next two years, including significant capital investment for infrastructure, even as the failure rate crests one-in-two healthcare technology businesses, according to a new report from IT consultant Accenture.

The study examined some 900 healthcare technology companies with solutions across social, mobile, analytics, cloud and sensor technologies launched between 2008 and 2013 and backed by an aggregate investment of $4 billion.

Less than two years out of the gate, 51 percent were on the brink of shuttering their operations, the study showed. Accenture refers to startups in difficulty as “zombies” because they are dying but have resources, such as innovative technology and talent, that may benefit prospective buyers.

The booming healthcare market generally is recognized for presenting relatively unlimited opportunities for channel partners, fueled by a seemingly uninterrupted flow of capitalization for new business ventures and the development of new technology.

All of that is true to one degree or another. But not much is said about the failure rate of healthcare technology startups and what happens to the left-behind technology and talent.

“Rather than discard the investment that has been made in getting sputtering start-ups off the ground, it often makes sense for healthcare stakeholders to acquire them, salvage their best people and technologies and awaken them from a zombie-like existence,” said Kaveh Safavi, Accenture global healthcare business managing director.

“Many digital start-ups that are dying or in danger of failure have developed solutions that can help traditional and non-traditional healthcare companies achieve their goals,” he said.

Accenture said that “zombie” healthcare startups often command a stockpile of benefits for acquiring firms, from so-called “acqui-hiring,” or procuring talent from failing companies, to stores of intellectual property patient data that can accelerate research and development efforts, to bolstering existing solutions.

“In a period of disruption, leading organizations understand that they cannot keep doing the same things and expect to succeed,” Safavi said. “They must become disruptors instead of being disrupted. Acquiring a failing health IT start-up with excellent people and promising intellectual capital could be just the prescription for achieving that goal.”

And, new opportunities for channel partners.