It’s an exciting time to be an investor in consumer healthcare companies. Before becoming a VC, I was a management consultant focused on healthcare strategy at Deloitte Consulting. During the passing of the Affordable Care Act, I worked with clients across the healthcare industry– providers, payers, and pharmacies– to build and execute their evolving strategies in a changing environment.
Now, as a Partner at Maven Ventures, I focus on identifying and investing in the most impactful consumer software trends. About a year ago, I began to see a trend in the healthcare industry: the large-scale government reform efforts were finally beginning to impact the daily lives of individual consumers. So over the last twelve months, I’ve met with dozens of promising teams building consumer-focused healthcare companies with truly inspiring “visions worth fighting for.” But, I haven’t made any investments yet. I’m still actively looking for a company that aligns with the Maven investment thesis and my background and personal interest in healthcare. Based on all of those conversations, I’ve identified some of the most significant challenges facing consumer software startups in the healthcare industry today:
- Consumers don’t make most product or purchase decisions about their own healthcare. While patients are responsible for their health and wellness decisions on a day-to-day basis, when decisions are made within the healthcare system, they are driven by care providers and often influenced by payers. Individuals are trained to consume healthcare and aren’t searching to buy or adopt products. I’m not suggesting that patients replace doctors as the primary decision makers. However, because of this structure, products that rely on acquiring customers on an individual basis have a particularly hard time. Customers can be hard to find and acquisition costs can be very expensive, especially when multiple companies find the same niche and compete to pay for those customers.
- B2B business models are most common and well-understood, not B2C. Because of the “doctor as decision maker” paradigm, it’s more common for startups to target providers or payers as the primary customer, not direct-to-consumer. Businesses sell to doctors or insurance companies, who then push the product to their patients or members. Building partnerships with big healthcare companies is often challenging and takes a long time, but this can be a great business model. If an enterprise or SAAS strategy is right for you, then focus on it. It’s just not in our investment area as a consumer software fund.
- People don’t like to think about their health. That makes it hard to get them to adopt and use new health-related products, and might be the most challenging behavior pattern to shift. For most people, major healthcare decisions are infrequent. There are obvious exceptions like co-morbidity patients and chronic illnesses, but the majority of individual consumers don’t have a frequent use case for health related products. This makes it harder to build and sustain a consumer business, where we often look at long-term product engagement as a critical factor for success.
Even with these obstacles, I do believe that now is the right time to build a billion dollar consumer software startup in the healthcare industry. Because of insurance mandates, coupled with the rise of self-employed individuals and insurance exchanges, consumers are getting more exposure to healthcare decision-making. The increasing frequency of high-deductible plans is making individuals more aware of healthcare costs. And, consumer adoption of technology in other areas of their lives is happening faster than ever before. I’d love to find a team of passionate entrepreneurs, fighting for a meaningful vision, who can capitalize on these trends and build a healthcare software company for individual people and families. If that’s you, let’s talk.
This guest post was written by Sara Deshpande, Partner at Maven Ventures. Follow Sara on Twitter @saraannet.