Report: Investments in disruptive healthcare startups stagnate from 2016 to 2017

By Dave Muoio
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While the startup ecosystem of 25 major US markets grew 35 percent from 2016 to 2017, investment into companies specifically looking to disrupt healthcare with digital care or other solutions remained relatively stagnant during the same period, according to data from the US Chamber of Commerce Foundation and 1776’s annual “Innovation that Matters” report.

However, these data likely aren’t signs of a weak investment ecosystem, explained Margaret Shepard, managing director at 1776 — a Washington, DC-based global incubator and seed fund. Breaking down the healthcare-specific data today at the Connected Health Conference in Boston, she said that the sharp contrast between healthcare startup funding and the growth measured in other industries — such as energy, education, and television — could be simply be an “interesting” effect of last year’s gains.

“We don’t think that this means anything intense,” Shepard said. “However, in 2016 health was king, so we think it’s just a recalibration [since] the health system really dominated last year. Even this year, we saw an average of 118 health startups founded across our cities.”

Across the 25 major cities included in the report, Shepard noted that there were fewer exits by disruptive healthcare players in 2017 than there were in 2016, but again waved this trend off by arguing that continued participation in an industry as rigid and complex as healthcare is encouraging in and of itself.

“Next-wave startups are poised to interrupt key industries, including health, in the near term,” she said. “We’re really seeing [interest in] these key markets like health that desperately need it. They’re highly complex, they’re highly regulated, and so we’re seeing a lot more challenges in penetrating them but a lot more solutions being brought forward by startups.”

1776’s report further broke down investment into disruptive startups on a city-by-city basis. For healthcare, Shepard noted that, respectively, San Francisco Bay Area, Boston, and New York unsurprisingly continued to lead the pack. More interesting was that Los Angeles and Philadelphia showed substantial growth to take the number four and number five spots weren’t very far behind New York in 2017 healthcare startup funding.

The advancement of these and other markets included in 1776’s city rankings can be directly attributed to several factors, chief among which is strong connection and encouragement from public players, Shepard said. Specifically highlighting the startup-friendly messaging of Philadelphia Mayor Jim Kenney and Boston Mayor Marty Walsh, she stressed that commitment to developing a connected, startup-friendly ecosystem is necessary to keeping investment healthy and innovators happy.

“Cities and ecosystems’ commitment to startups is extremely important, and demonstrating that commitment is especially important to their success,” she said.

Conversely, Shepard also warned of startups’ growing feelings of disengagement from other industry participants. Such feelings increased from 2016 to 2017 across every industry covered in the report, and Shepard made a point to mention that her group even heard the sentiment, and among those cities showing the most healthcare investment growth. As such, she stressed the impact that maintaining an interconnected ecosystem of healthcare startups can have on a market’s continued development.

“Innovation is really not about disruption; it’s about collaboration. It’s about community building,” she said. “It’s about connecting your startups and making them engage with the people around and building a support network that’s going to help them grow. City and business leaders have a really important role to play in making that community. … As you’re looking to work and engage your startups, commit to them, cultivate them, and champion them.”