Zombies aren't just on "The Walking Dead" any more. A growing number of digital health startups are also dead on their feet, according to a new report from Accenture.
The global consulting company predicts that more than half of all start-ups funded between 2008 and 2013 will die within 20 months – and one Harvard lecturer says three out of every four venture-backed firms will fail. Accenture classifies "zombie start-ups" as those that received less than $50 million in funding during that time period and have received no new financial backing in 20 months or more. They also account for some $4 billion in total investment funding spent between 2008 and 2013.
But here's the thing: Beyond the blood and gore and missing limbs, zombies can be appealing. In fact, Accenture says some of these companies can turn out to be very profitable to other digital health companies willing to spend money on an acquisition – they're called "vulture capitalists."
That's because not every dying start-up is a bad idea.
"A company's failure is not necessarily the result of an inferior or ill-conceived solution, an unskilled team, a lack of market understanding or even a poorly executed business plan," the Accenture report stated. "In other words, there is often something of value to salvage from zombie start-ups."
In fact, according to Accenture, some 41 percent of the healthcare industry's merger and acquisition deals involve zombie start-ups.
"Innovative enterprise will swoop in on digital health start-ups to capture relevant and at-the-ready resources," the report states. "It is a strategic approach to expand offerings, appeal to the empowered healthcare consumer and move into new digital markets without starting from scratch."
As proof, Accenture cited three examples. Qualcomm Life's 2013 acquisition of HealthyCircles was considered by one Qualcomm Life executive as a talent acquisition as much as a technology deal. That's because more than 60 percent of CIOs are having problems finding the right IT staff, according to studies. In acquiring HealthyCircles, Qualcomm Life brought aboard almost all of the company's IT talent.
In another example, St. Jude Medical's acquisition of CardioMEMS gave the company a valuable cache of intellectual property and patents focused on heart monitoring technology, according to Accenture. This in turn boosted St. Jude's R&D efforts and product development cycle much faster than if the company had gone with a home-grown approach.
Finally, Accenture sees Optum's acquisition of Audax Health Solutions as a natural fit, and one that bolsters Optum's product offerings to retain business.
Accenture still sees the mHealth start-up market as one having great potential. Focusing on social, mobile, analytics, cloud and sensors (SMACS) technologies, it sees funding for those types of businesses soaring to $6.5 billion by 2017, with particular emphasis on infrastructure (29 percent), engagement (25 percent), treatment (25 percent) and diagnosis (21 percent).
"From wearables/nearables and telehealth to remote monitoring and on-demand services, innovative market offerings are diverse and potentially game-changing for healthcare providers, payers, patients and even non-traditional healthcare stakeholders," the report states.
And Accenture figures zombies will become even more popular, as healthcare companies looking to gain an edge in an increasingly competitive market target struggling start-ups that have just what they need. "High performers of the future will be those who position themselves at the center of digital ecosystems," the report concludes. "These organizations will stretch their boundaries into a broad array of other digital businesses, digital customers and even digital devices at the edge of their networks. Those that pursue this strategy should establish a clear vision and conduct the due diligence to identify the right zombies to target."