You know how you accumulate stuff in your office until it feels like a time capsule? Well, that was my office until last week. I decided it was high time to dig a trench between the door and the desk and, in the process, to move whatever was in there taking up space to that great Marie Kondo graveyard.
As I finally turned to the 6 large file cabinet drawers that had barely been opened in years, I exhumed a treasure trove of old business plans and power point decks that had been pitched to me while I was working full time in venture capital. For some reason, I was particularly pack-ratty during 2014, and there were dozens and dozens of plans there just waiting to remind me why I had passed on them, mostly.
2014 wasn’t that great a year in the world, generally. Russia annexed Crimea, the foreshadowing of what we are experiencing now. Ebola made its appearance on the scene, nearly foreshadowing the much larger and more deadly pandemic we are experiencing now. And an Austrian contestant won the Eurovision Song Contest with “Rise Like a Phoenix,” which fit perfectly with the 2014 timing of the stock market recovery after the 2008 crash; Let us all pray that this song soon makes a strong comeback.
Back in 2014 the digital health trend was just getting going. Venture funding for the category had suddenly catapulted up to $4 Billion, representing 125% growth over 2013 and 4x growth over 2010 when the category was first being tracked by Rock Health. They called the figure “staggering” which, in retrospect, seems so very adorable given what was to come. 258 companies each raised more than $2 million in 2014, according to the Rock Health report, which again seems quaint in hindsight. In 2021 I think 258 companies probably spent $2 million each on fleece vests, so it’s all relative, right?
Notably, Rock Health reported that the top companies by total venture funding raised in 2014 were: NantHealth, Proteus, Alignment Healthcare, Invitae, Flatiron, and American Well.
I’m going to go on out on a limb and say that Invitae is not a digital health company, not then, not now. We know that Proteus long ago shuffled off this mortal coil. Alignment Healthcare basically morphed into a Medicare Advantage plan, so not really a digital health company, unless you count technology-enabled services in the form of insurers in that bucket.
NantHealth said it was going to “transform healthcare” but if healthcare has transformed, I must have blinked and missed it. Founded in 2010, they are certainly out there operating and are a public company (if you count $.52/share as a public company), but they have yet to achieve profitability.
Flatiron was an early digital health success story, acquired in 2018 by Roche for $1.9 Billion and becoming, for at least 3 years afterwards, the company most often cited by entrepreneurs in their pitch, as in, “Well Flatiron got sold for $2 Billion and we are much better than them so…”
And American Well is out there doing its telemedicine thing, bolstered big time by the pandemic and now dealing with the fact that the stock market succumbed to gravity. Now called Amwell, the company was already 8 years old in 2014, a year in which they say they had 1 million downloads of the product –they were still largely a direct-to-consumer enterprise then, not the health system telemedicine enabler that they are, primarily, today. Despite a run rate around $275 million, the company remains highly unprofitable.
There was big talk of “Big Data” already in 2014. A very prescient quote I found while leafing through my painstakingly detailed hand-written notebooks from the year was, “Data is a currency, and therefore you have to turn it into something for it to be useful.” Another was, “Very few engineers step back and think about the psychological factors and design based on what consumers need.” In 2022, I still see companies struggling with both of these issues on a regular basis.
My favorite quotes captured in my 2014 notebooks were these:
“We have a unique human capacity for empathy that we have learned to bury in favor of materialism. We need to reconnect innovation to empathy,” Trip Hawkins, founder of Electronic Arts, among other companies, speaking at an Xconomy event.
“Friends and family money has a turkey tax. Every Thanksgiving becomes a Board meeting,” Jeff Tangney, founder and CEO of Doximity, speaking to me during a fireside chat at UC Berkeley.
“A tool is not a competency and communication isn’t necessarily care,” Dr. Joe Smith, now Chief Scientific Officer at Becton Dickenson, said to me during a pitch. FYI, still totally accurate.
“The medical model doesn’t allow the power of social interaction to play the role it can and should in healthcare innovation.” Didn’t capture who said it in my notes, but truer words were never said.
And last but not least are these two comments from the Health Evolution Partners meeting of 2014:
“It’s a lot easier to sell on the promise of the future than on the reality of performance. That’s why so many health tech companies sell out early,” Riley Scott of Raymond James.
“Digital health is mostly old wine in new bottles,” Rob Coppedge, now CEO of Echo Health Ventures.
I am a copiously detailed note taker and my most common notation at the bottom of the pages documenting 2014 company pitches is this: “No discernible business model.” This has definitely improved in the digital health realm, but not universally so.
And speaking of no discernible business model, there were a lot of direct-to-consumer business models in 2014. I hope that companies have learned the difference between healthcare and personal care at this point – it is a rare American who voluntarily pays for healthcare services out of pocket.
Anyway, I further got waylaid during my spring/summer cleaning exercise as I went down-the-rabbit-hole looking through my 2014 file folders. Here’s a summary of what I saw:
There were numerous companies doing home diagnostics, including blood testing at home, telemedicine, remote patient monitoring, remote rehabilitation, and the like, most of which are stone cold dead at this point and none of which would have made it very far by 2022 without COVID anyway. All of these categories have made a bigger comeback in 2021-22 than our Eurovision Song, rising like a Phoenix in a world where people still worry about leaving their homes due to COVID. So I guess the moral of that story is what goes around comes around (and hopefully not those who forget history are doomed to repeat it!).
There were at least 10 gazillion care management and disease management companies in the 2014 mix, with a lot of talk about “behavioral economics”. I haven’t heard that term in a while, so I guess it has been replaced by “recap round” as the phrase du jour. FYI, “e-health” was still a thing in 2014 and permeates every pitch. If you are playing Wheel of Fortune and need to buy an “e”, I’d recommend going back in time to 2014.
Given that Obamacare was just enabling insurance coverage for (nearly) all, there were a lot of health insurance exchange companies and numerous companies purporting to be a next generation insurance company that would be cheaper than the rest. We aren’t seeing a lot of either of these anymore, except as it pertains to Medicare Advantage plans (new, not cheaper).
2014 featured a gaggle of wearables, including everything from a smart temperature patch to clothes that monitored heart rate. But there was nary a business model among them except “consumers want this stuff.” I think the jury is pretty much still out on whether single sensor companies can really achieve any meaningful size on their own. See note above about tools vs. competency.
Also, there was a Theranos file. No further comment needed on that.
I did find a few gems in the mix. LetsGetChecked and Stride Health are still going strong. Pristine Eyesight is also flourishing, though they left healthcare for industries that could better appreciate their Google Glass applications. And Propeller Health, one of my digital health favorites, had a successful exit to ResMed (for $225 million).
I am still friends with David Van Sickle, who founded and led Propeller Health from its start to after its acquisition by ResMed. I asked him if it were ok to share some of the tidbits from his 2014 pitch to me, and he seemed fine with that, seeing that his check was long ago cashed.
A notable thing about Propeller was the amount of effort it put into demonstrating evidence of efficacy and economic impact. Propeller was way ahead of its time on this front. The company had about $1 million in revenue in 2014 and had several marquee clients. The company was projecting $22 million in 2016. Unfortunately, it never got there, at least not before it was acquired in 2018, demonstrating again that adoption in digital health, even with proof of value, is not easy.
Clearly, COVID has made the prospects for digital health adoption better and more possible, but we are about to find out how much of the lurch forward was due to demand and how much was due to relaxing regulations and making reimbursement easy. Now that regulations have tightened up in many cases (e.g., many states are back to limiting practice across state lines) and reimbursement is a mixed bag (as of June 2022, 21 states have implemented policies requiring payment parity between telehealth and in-person services, 5 states have payment parity in place with caveats, and 24 states have no payment parity)
The funny thing about digital health is that until the COVID emergency, adoption in digital health was hard to see with the naked eye. I had health system clients at the time which had been delivering a few hundred telehealth visits a year and suddenly shot up to a few hundred thousand. But the numbers are coming back towards earth and the question is whether the ultimate curve will rise, Phoenix-like, to approximate the famous Gartner hype cycle “slope of enlightenment” or whether it will fall victim to the classic blunder of healthcare, which is never bet on something that isn’t reimbursed or driving significant amounts of new revenue for its user.
I am cautiously optimistic at this point, because there seems to be some reason entering into the conversations with those who use digital solutions. Yes, there is still a lot of hype, but there are now companies with significant revenue who are learning how to spell EBITDA. There are also medtech and pharma companies showing serious interest in data and services, just as there are payers and providers showing serious interest in leveraging technology to do more for people with less access to healthcare, especially mental healthcare. I am seeing signs that venture capitalists remember that there are numbers below a zillion. If entrepreneurs can come around to normalizing proof of value defined by adoption rather than valuation, I will mark it as a win!
It will be quite interesting to look back in 2030 and see what 2022 (mostly electronic) files will reveal, aside from the fact that it is no longer a good business model to sell cardboard file folders.