This post also ran in Health Care IT News on October 1, 2012
I was hanging out with Tom Rodgers of Cambia Health the other day and we were discussing the seemingly unrelenting trend of the formation of new technology incubators and accelerators, designed to help catapult the weird and wonderful ideas of entrepreneurs into actionable companies. The idea is to take these entrepreneurs and the light bulbs that have formed over their heads, put them together with each other (often in a physical location with loft-like qualities), wrap them in a burrito of high quality resources and experienced mentors and cook for about three months until what comes out is one big yummy pile of companies ripe for gobbling up by venture capitalists.
This trend has been longer lived in pure technology and medical technology fields (YCombinator, Tech Stars, The Foundry) and more recently has come to the world of healthcare IT in a pretty big way with the formation of Rock Health, Blueprint Health, HealthBox, Janssen Labs, Start-Up Health and several others founded and in process. One can only imagine that, somewhere near MIT, there is an incubator for incubators in the works. I have, my own self, been approached by three, count them three, newly forming incubators in the healthcare area over the past few months. When they ask for my advice I find myself saying, “Are you sure you want to do this? Does the world really need another one?”
Don’t misunderstand me. There are some phenomenally smart and successful people involved with some of these incubators. In the healthcare IT versions in particular, the young and creative minds that have come together have brought energy and excitement to a space that has made people yawn and run away screaming for years. If you think watching paint dry is boring, hang out at HIMSS for a few hours–it’s the ultimate cure for insomnia. But the demo days at the current crop of healthcare IT incubators are energy-laden, dripping with hip, smart people, and virtually free of pocket-protectors–unless there is an app for that.
The worry I have however, is that it’s getting a bit out of hand. As I have said before, it has become almost too easy to start a technology company. All you need is an iPhone, a Starbucks card and a golden retriever and you can declare yourself a cloud-based offering that has declared war on the way things have always been done. I recently heard Jody Holtzman, Senior VP of Innovation at AARP say something like, “Who knows if there are too many incubators? There is certainly no shortage of companies.” True, but are they all worthy of being hatched?
I saw a recent article in which YCombinator, generally lauded as the gold standard for incubators, said that while they have had over 200 companies matriculate through their program, the vast majority of their value was derived from only two: Dropbox and Airbnb. If this were baseball, that would be a really questionable batting average. I think one of the problems with too many of the incubators overall is the way they measure success: namely by seeing companies come out the other side funded as opposed to creation of lasting market leaders.
As we VCs all know, just because something got funded doesn’t mean it’s good. If that were the case, we would have a much higher rate of success in our own portfolios. In fact, the youngest companies have an exceptionally high failure rate, most believe over 80%. Thus a network of incubators that must continue to feed itself by finding hundreds of new companies every three months or so has to make a few compromises, even if they don’t realize it at the time. In a perfect world, incubators would be judged not based on the rate of company funding post-graduation, but on those companies’ ability to survive to produce a positive return on investment.
And so it was, Tom Rodgers and I drinking a beer and talking about this trend, when he told me he had seen an article about a new incubator/accelerator being launched on a boat! I couldn’t believe it so when I went home I went to The All Knowing All Seeing Google and looked it up for myself. Lo and behold, I found THIS ARTICLE describing a new incubator called BlueSeed that will sail the Pacific like Spongebob Squarepants “to create a visa-free, floating incubator for international entrepreneurs off the California coast near Silicon Valley” for those foreign entrepreneurs that aren’t able to spend their time on US terra firma. To quote from the article:
“Blueseed’s co-founders, Max Marty, 27, and Dario Mutabdzija, 31, envision a seaworthy, 1,000-passenger hothouse for entrepreneurs from around the world, moored 12 nautical miles offshore — just outside California’s territorial waters — with enough appealing amenities to make it a “Googleplex of the Sea.” Passengers could take a day trip by ferry to the mainland on temporary tourist or business visas, returning to sleep in cabins that would rent for $1,200 to $3,000 a month.”
“Blueseed is a way to connect Silicon Valley with the amazing founders and entrepreneurs out around the world,” Mr. Marty said. “Existing visa policies were designed for a different era. The nature of business has changed, and what’s lacking now is an avenue for people to be able to come in and create great companies.”
Oh Lord, I thought, as I fired an email off to Tom saying something like, “Holy cow. You were right, there really is an SS Minnow incubator.”
And here’s how I know there may be just a few too many of these incubator things.
Tom emailed me back saying, “That’s not the incubator on a boat I was talking about. There is another one.”
You gotta be kidding me.
The one Tom had read about is featured in THIS ARTICLE and is called Unreasonable at Sea. To quote the article:
“Unreasonable At Sea, a new program aimed at creating technology to solve big problems, will put 11 teams of hackers, scientists and entrepreneurs from 16 countries onto a ship in January to see what bright minds in a confined space can come up with…”
This ship is going to hit 14 world ports of call and spend four months letting these hackers hack and meet local business and government officials, hoping that when they disembark, the hackers will have hatched into entrepreneurs who have come up with more than just an app to replicate Captain Hook’s ticking crocodile.
The article goes on to say:
“Entrepreneur Daniel Epstein, who’s spearheading the project, calls it “a grand experiment in transnational entrepreneurship.”
“To help fuel their innovations, the ship will house a number of influential mentors at various legs of the journey: Archbishop Desmond Tutu will board for eleven weeks, WordPress founder Matt Mullenweg plans to jump on the boat, and Behance founder Scott Belsky will drop by for the China leg of the trip.”
I don’t know about you, but I can’t stop thinking about that Andy Samberg/TPain/Lonely Island short from Saturday Night Live called, “I’m On a Boat!”. (WARNING: bad word alert.. don’t watch the video if you don’t like cursing).
A sample lyric:
I’m on a boat and it’s going fast and I got a nautical themed Pashmina afghan I’m the king of the world, on a boat like Leo If you’re on the shore then you’re sure not me, ohhttpv://youtu.be/R7yfISlGLNU
No word on whether those who fail to innovate on the S.S. Gilligan’s Brain on Stock Options will be forced to walk the plank. Note to would-be sailors: almost all of the people who end up in these incubators are men, so this is likely to feel a lot more like the Pequod than the Love Boat. If this many incubators are taking to the sea, does that suggest the idea has literally jumped the shark?
What’s next after a boat? With a goat? On a plane? On a train? In a tree? Seems like a lot of incubators if you ask me.
I really enjoyed this, Lisa! As you saw, I tweeted it, plus posted it in my Digital Health group http://lnkd.in/y_aVeR
AND I added it to the top of my funding page on my website: https://www.wirelesshealthstrategies.com/funding.html
Maybe I’ll tattoo it on my chest for good measure. 😉
Best,
Paul
Forehead would work better
That’s nothing. My new incubator is on an airship
Leave it to you to raise the stakes. My new incubator is going to be in the Saks Shoe Dept. I like to be surrounded by what inspires me.
Lisa,
right on! I am going to post it anywhere I can! Apparently, the earth is not big enough for big minds starting incubators. They are exploring water world and who knows what’s next?
Tutu has been a regular on Semester At Sea (college credit for circumnavigating the globe–I did it S87 is a real thing like no other) so to hear he’s getting on a ship that’s doing incubating companies seems perfect for him.
I agree with your thoughts about the quality of companies coming out of incubators. What happened to looking at companies that have already crossed the regulatory and reimbursement hurdles and are ready for full commercialization?
I found this article very comforting as I have resisted applying to any incubators except for one (I was rejected). My advisors are not fans of incubators and they are all note worthy entrepreneurs in the healthcare industry. Thanks for the write up and even more for the T-Pain quote.
While I enjoyed the humor in the article – we’re indeed chockful of “Facebook for dogs” startups – lumping in Blueseed and Unreasonable at Sea is uninspired.
Unreasonable has a very specific value proposition – global expansion by exposing entrepreneurs to different markets in rapid succession.
Blueseed has an even more unique one – it’s the only way (unfortunately) to help solve the idiotic high-skilled immigration system in the US. What is so amusing about the fact that, in Eric Schmidt’s words, we’re educating international students in the US then kicking them out to start companies elsewhere?quote
Lisa:
Don’t I recall you issuing an open letter to the industry a few years ago urging more people to invest in health IT? At the time, it was nearly impossible to find seed stage investors in the space and even as you wrote that letter, Psilos was only funding later stage and post-revenue companies. In essence, you were begging others to come in and take the risk at the top end of the funnel in order to create a pipeline for VCs. Now, as this has finally happened, you seem to be complaining about it. Yes, 80% of these companies may fail, but that’s the whole silicon valley model. Get lots of great ideas, lower barriers to building them and testing them out, see what works, and iterate quickly. If there are people who want to put money behind health IT incubators and help more startups get off the ground, we should welcome every single one of them. More dollars and more competition means more talent, more ideas get funded, and more viable and successful companies come out of it. That’s good for all of us, including Psilos, who can invest in them when they go looking for Series C.
Dear Oso, thanks for your comments. Yes, I definitely did and continue to encourage Health IT innovation. My question is about whether all of these incubators add to the quality of the mix. It’s a quality issue, not quantity. We can take the “let 1000 flowers bloom” approach, but we then have to be prepared for 800-950 of them to die on the vine. I am not sure that is any better of an outcome than not enough companies and it wastes capital, frustrates customers and leaves a worse taste in investors mouths downstream (see Internet bubble 2001). Innovation is great and things that sponsor innovation are great, but it’s important to keep the money flowing to what has a real chance of success, not just what meets a checklist of criteria. Some of the incubators provide real value without a doubt. I am just worried that it is getting a little to much. Furthermore, I do not think that incubator success should be defined by throughput and funding, but rather by having left a trail of great companies of value. I hope this is what we find, but I suspect it won’t be a universal outcome.
Lisa:
Thanks for the thoughtful reply (and for your willingness to post a comment that somewhat disagrees with your premise). I would argue that even if 85 or 90% of these companies don’t make it, the next generation of companies (and those same investors) will learn from them, producing the next round of new ideas and opportunities. Silicon Valley is great at quickly learning and building off of both successes and failures – this process is the heart of our model. What is important is trial and error, quickly building and testing new ideas so we can collectively move forward. This is where incubators are great – helping small teams with good ideas use a small amount of money and shared resources to find out if their idea holds water. Any student of innovation will also tell you that many of the best ideas often come from surprising places, so while the fact that many of the people participating don’t have a healthcare background, this can be a great benefit as well as a challenge. Health IT is several steps behind, but this new attention and influx of dollars (and talent) can only be a positive thing. I, for one, support any incubator that wants to put time, money, and passion into the space – whether on land, boat, or space ship.
Lisa,
what a great..and funny article!
It is indeed very concerning that some of these accelerators provide false hopes to young people expecting to be the next Steve Jobs of the healthcare revolution.
I highly recommend to young entrepreneurs to look at the background and the track records of the people teaching them at these accelerators … how to build businesses.
The endgame is not to raise a round of funding ..but to ensure you have a road map and mentors to get you there.
Check http://www.healthtechconference on October 26.
Thanks Anne, for the note. I hope everyone goes to your conference! Lisa
I am going to start an incubator in space. But seriously, great read and totally insightful as usual. And “I’m On a Boat” is a masterpiece of modern music video.
Amanda, I would say space,the final frontier except somewhere there is probably an incubator starting in alternative universe!
I am surprised as well by the explosion of accelerators in the health tech space, all in the last **18 months**. I agree with the overall sentiment here, however the accelerators are also bringing tremendous connectivity and heat to the frozen tundra of the health care world. They provide:
– an amazing home for all the pent up energy and talent coming in the space (where else would people go in a productive fashion???)
– community building for tip of the spear ideas
– a place for industry to connect with startups
– a fresh approach that is highly needed
In the past there has been a failure to create any of the above and a failure to draw great talent into the space.
The other thing of which there may be a bubble of sorts is the number of health innovation centers that have popped up in the last decade.
Hi Aman, I definitely agree that there is some very positive energy produced in some of the best accelerators. Lisa