Entrepreneurs have long recognized the potential for growth in the health care industry. Increasingly, the high-tech sector, and its startup-fueling infrastructure, are getting in the game.
Incubators, which back start-ups, are hungry for new healthcare ideas, particularly given the federal push for individuals to take more control over their health care. Competition for the most promising startups is increasing.
For example, tech incubator Y Combinator, which claims to have funded more than 700 startups since 2005, has for the first time started to actively recruit companies in the health care sector, Reuters reports. Before the emphasis on health care, getting a list of new ventures anxious for the mentoring, cash, and exposure that the well-known accelerator can offer had never been difficult.
"Startups are finally hacking healthcare," venture capitalist Tim Chang wrote recently for startup site TechCrunch. Chang, a managing director at the Mayfield Fund, wrote that successful health-tech companies are "combining premium services with extreme convenience, engaging social networks and communities."
At Y Combinator's recent demo day, there were a dozen hopeful health care companies, the largest number to date. "It's the right time for us to try health care," said Sam Altman, Y Combinator president, to Reuters. The demos came from companies working on an HIV vaccine and a way to treat so-called superbugs that are resistant to common antibiotics.
One reason Altman gave for the increased interest in health care on Y Combinator's part is that the speed of developing new products has improved significantly while the costs have dropped. Both those trends mean investors stand a better chance of seeing a profit than has been typical in biotech.
Digital healthcare startups also can potentially develop the massive scale and reach that have fueled social-media companies like Facebook (FB) and Twitter (TWTR). Then, when winners emerge, they can begin to buy up related start-ups for huge sums, compounding the potential for early-stage investors to profit. That sort of rapid turnover hasn't yet begun in healthcare, but venture capitalists see the potential.