Why Investors Might Be Too Obsessed with Health Care Startups
Home care startups have attracted millions of dollars in funding over the last few years, but investors may not be aware that these companies are operating at the “peripheries of the health care system,” according to a recent CNBC column.
Specifically, venture capital investors tend to view health care startups like any other startup in terms of valuations, casting aside how complicated health care can actually be.
“For tech investors, these opportunities hold the chance of an outsized return in five years or less,” the article reads. “That often [comes with] valuations on par with consumer Internet start-ups.”
However, home care start-ups—and other health care start-ups that operate in other areas with fewer regulations—may not reach the sickest, and costliest, patients, the article argues. And reassessing and changing business models later in operations to target higher-cost patients—those that need innovative solutions the most—might not work out.
In fact, some health care startups may find themselves unable to work on the edges of the traditional health care system. One example is HomeHero, a California-based home care start-up that raised $23 million in funding rounds over two years— but that recently shut its doors for good.
“After some regulatory changes that upended the home care industry, HomeHero pivoted to partner with hospitals rather than outside of them—and that required hiring experts and getting educated about the inner workings of health systems,” the article reads.
This shift upended the business instead.
Despite these challenges and “cautionary tales,” investors in Silicon Valley and elsewhere are still flocking to the strong demographics in health care, the article concludes.
Written by Amy Baxter