Today, I was on a funding panel organized by Singularity University during their FutureMed program. Traditional medical devices and biotech companies are facing a significant funding gap from the shrinking venture industry. This is due to the lack of clarity of the FDA approval process and the challenges in getting reimbursement for new products. As a result funding in traditional life science companies has decreased significantly especially for the earlier rounds. However a new sector is emerging under different names: digital health, mobile health, HIT or HealthTech. The direct to consumer applications have seen a surge of new startups in the last 12 months, followed by Angels or technology venture capitalist. There are two areas that are emerging with significant opportunities:

· Improving the productivity of the existing healthcare providers in the existing fee for services payment system and under the upcoming patient population driven by the healthcare reforms.

· Engaging the patient to take responsibility to manage their health or chronic disease conditions.

These two sectors will require new approaches in building businesses. Starting with a small amount of initial capital, these young companies need to be heavily mentored to understand the pain points of all the stakeholders in the healthcare systems, engage consumer to change behavior, leverage the new mobility and social platform.. Without requiring significant capital investment!

These are the time of defining pain points, quick prototyping, customer feedback, product iteration to understand user adoptions.....and the revenue model!

Too many entrepreneurs are developing cool apps... Without spending enough time on the business issues. Since there may be low IP protection, what are the barriers of entry on the business side? How will your acquire the customers..at an acceptable cost? How will you retain them? Who will pay..and why? What will you have to do to convince them? Do you have to interface with the existing medical information system? How scalable is you backend operation? These are questions that you first investors will ask.. If you don't have these answers you will need a clear roadmap on how to get them!

On January 20, 2012, I was a speaker on the panel "Funding Mechanisms" at the Healthcare Innovation Summit in San Francisco.

Sarah Varney of KQED interviewed me for the KQED California Report and an upcoming National Public Radio broadcast. 

Pleased listen to the audio link after the short local news.

Medicare and some health plans are beginning to withhold payments for medical mishaps, preventable infections, and readmissions. The federal health law also forces them to pay more attention to how much they're spending. Both factors have a direct effect on the kinds of investments that Silicon Valley venture capitalists are betting on. Reporter: Sarah Varney

PharmaSecure - an international company founded by two Dartmouth alumni in 2007 that prints unique barcodes on consumer drugs to verify their authenticity - received additional funding this week, bringing its total awarded amount to $3.9 million over the past two months, co-founder and CEO Nathan Sigworth '07 said in an interview with The Dartmouth. PharmaSecure, which is based in Lebanon, N.H., and operates exclusively in India, received the funding through a joint investment from HealthTech Capital, Gray Ghost Ventures, TEEC Angel Fund and Innovation Endeavors, which is run by former Google CEO Eric Schmidt, according to a PharmaSecure press release.

The company installs specialized printers that print unique barcodes and serial numbers on drug labels in pharmaceutical factories, Sigworth said. When a consumer purchases a drug, he or she can text the code on the label to PharmaSecure, which then sends a response message notifying the consumer of the drug's authenticity, he said.

There is no charge for consumers to use PharmaSecure's service, Sigworth said. The company profits from the drug manufacturers that purchase and use the printers, he said.

PharmaSecure, which was co-founded by Taylor Thompson '08, plans to use the funding to expand its team and develop new ways to use the data it collects regarding where drugs are used and who purchases them, Sigworth said. He said he hopes this information will allow people to receive better health care in the future.

Anne DeGheest, managing director of HealthTech Capital, said HealthTech was attracted to PharmaSecure because it fit with the fund's aim of investing in companies that use business models to improve health care delivery.

"PharmaSecure really hit our sweet spot," she said. "They found a low-cost and effective way to reach out to the patient so that he could confirm that the drug he had in his hands is correct."

HealthTech invested over $400,000 in PharmaSecure and also encouraged Innovation Endeavors to give a donation to the company, DeGheest said.

The Los Altos Town Crier published an interview this week about two recent investments with my angel group HealthTech Capital:

Los Altos Hills resident Anne DeGheest serves as managing director of HealthTech Capital, an angel-investor group based in town. Recently, the healthcare veteran's firm invested in two startups as part of a Series-A syndicated financing round. Following is a Q&A between the Town Crier and DeGheest.  

Q: As the name suggests, your company invests in tech companies centered in the health-care industry. What are some telltale signs that a particular company is a good investment?

A: HealthTech Capital is a group of angel and venture investors investing in companies that will decrease health-care costs. We typically see two big categories: better productivity tools to improve the delivery of health care by existing providers (from hospital to home health) and new patient engagement solutions from the very sick to the healthy/fitness market.  

Q: What convinced you and your colleagues to invest in PharmaSecure and Niveus Medical?

A: We were very impressed with what the entrepreneurs had accomplished with very little capital. They showed passion, commitment and an ability to deliver significant milestones with a small amount of angel capital. They have big ideas that can have significant impact to the health-care system. In both cases, we had mentored them heavily before we made the investment. PharmaSecure uses cellphone technology to combat the global problem of counterfeit drugs. Niveus Medical is developing a technology to preserve muscle strength during long hospital stays, especially time in the intensive-care unit, and could accelerate patient recovery, shorten hospital stays, and reduce both hospital and payer costs  

Q: HealthTech Capital invested in these two companies alongside other venture-capital firms. Is there a growing trend toward syndication? What are the benefits/drawbacks from a venture capitalist's standpoint?

A: There is a growing trend for angels to organize themselves into specialized groups like HealthTech Capital to pool their expertise together and increase their investment leverage. In addition, these angel groups are cross syndicating with each across the country. It allows us to close a larger round of $2 million to $3 million and attract small venture firms to syndicate with us. There has now been a growing amount of deals with angel groups leading the round with an anchor term sheet and having smaller venture firms following these term sheets. It allows venture firms to diversify and deploy their seed capital into more deals knowing that these established and respected angel groups will be value added in identifying promising companies as well as mentoring them to the next level.  

Q: What are some ways in which you mold the business strategy of a young health care/tech company?

A: As a business architect and mentor capitalist over the last 25 years with my personal company, MedStars, I have been working closely with health-care entrepreneurs in understanding the pain points of all the stakeholders involved, developing a value proposition for each one of them that creates a sense of urgency and building barriers of entry beyond traditional patents. In particular, I have been very successful at creating new large health-care markets by adapting other industries' business models and technologies to solve inefficient health-care workflows. HealthTech Capital is expanding on this approach by leveraging all our members' expertise in existing health-care delivery, FDA oversights, new upcoming technologies and sustainable consumer engagements approaches. We help them refine their business models by leveraging our members' expertise and networks to answer questions like: What are the pain points being solved? Who are the stakeholders? Why would they pay? How will we prove the value proposition? What are the regulatory/FDA oversights? Why is it unique? How can they defend against existing and future competitors? How will you scale up?  

Q: Of which Halloween costume you've worn in the past are you most proud?

A: Being born in Belgium, I usually have a European flavor theme ... with a Belgian chocolate twist