Health I.T. start-ups are increasing, and so is help for them

Technology is partying like it's 1999. If you doubt it, go to the home page of StartUp Health (www.startuphealth.com), an "academy for health and wellness entrepreneurship," and look at the bevy of young, high-caliber geeks-MBAs, MDs, Ph.D.s-who aspire to make their fortunes transforming health care with advanced analytics or mobile apps. New ventures are springing up all over. The total amount of venture capital invested in health information technology was $362 million through the first half of this year, compared with $270 million during the same period last year, according to research company Dow Jones VentureSource. A total of 91 rounds of venture funding went to HIT start-ups in 2011, up from 71 in 2010, and the amount of funding was about $660 million, up from $525 million for 2010, the company estimates. “We’re starting to see a re-emergence of concepts that we first saw in the dot-com era that the industry wasn't ready for then," says Dow Jones VentureSource Global Research Director Jessica Canning.

Back then, most providers were still doing most clinical record-keeping on paper or stand-alone systems and would have had to completely overhaul their information infrastructure in order to take advantage of all the brainpower being applied on their behalf. Now, entrepreneurs can ride the wave of automation resulting from federal stimulus spending, new I.T. requirements, and the availability of irresistible technological toys. Four out of five doctors carry a smartphone, and virtually every provider of any size has a wireless network. “The ecosystem of technologies has evolved to the point where off-the-shelf technology can solve a problem," says Vijay Lathi, managing partner of health care technology investing firm New Leaf Venture Partners, which has offices in New York and Menlo Park, Calif.

Its current investments include Tigertext, a HIPAA-compliant text-messaging application, and iRhythm, which develops simple cardiac monitoring devices. Investing in HIT is relatively easy compared with high-overhead ventures like drug and device development, says venture capitalist Dan Kincaid, who's heading Cincinnati's Innov8forHealth accelerator program. "It doesn't take a ton of cash to get most HIT startups going, and they're often business-to-business, which makes marketing and sales efforts more efficient," he says. Another factor is that the FDA hasn't (yet) stepped in to regulate most HIT applications, which gives early investors some extra assurance that they might actually make money if the product works.

“Start Me Up,” Elizabeth Gardner’s feature story in the October issue of Health Data Management, explores the assistance available to HIT start-up companies through accelerators, incubators and academies.