Health-Tech Incubators See Influx of Startups
When Seth Freedman co-founded IntelligentM in December 2011, he was confident of the appeal of his company's product -- an electronic bracelet that keeps track of hand washing among health workers so hospitals can improve hygiene and better control the spread of infections. But Freedman's previous experience as an entrepreneur was in consumer products and GPS technology, so he lacked the connections to break into the competitive hospital market.
IntelligentM, based in Sarasota, Fla., applied and was accepted to Blueprint Health, a New York City-based business incubator that puts health IT startups through an intensive three-month program to help them fine-tune their products and connect with potential customers and financiers.
"We came in with a concept, a product and one pilot test," Freedman says. Now, as the program prepares to wrap up on April 4 with a "demo day" to venture capitalists, "we have made connections in the health-care space that have allowed us to expand to three full-paying customers and a pipeline of two dozen." The program also helped IntelligentM branch out into other markets, including food service.
Blueprint, Rock Health in San Francisco and StartUp Health in New York City are the three leading health IT incubators, also referred to as accelerators. They each differ in their approach to helping companies get off the ground, but they're all seeing tremendous demand from entrepreneurs itching to get into the health arena. Blueprint alone had 1,000 applications last year, says Brad Weinberg, one of its partners.
Unity Stoakes, co-founder and president of StartUp Health, says three trends are driving the rush into health entrepreneurship. "Health reform is here to stay," he says. "Then there are the rising costs of an aging population. And digital is coming to healthcare for the first time, with doctors now carrying devices around in their pockets. This has created an opportunity to develop a whole host of products and services that even three years ago were not possible."
What can entrepreneurs expect from these incubators? Blueprint's approach is based on a mentoring model. Each company (there are about 10 per class) gets $20,000 in startup cash and three months of hands-on mentoring from a network of more than 100 physicians, insurance company executives, tech specialists and VCs. Blueprint takes a 6 percent equity stake in all its companies.
Rock Health is a not-for-profit incubator that bases its four-month program on helping companies scale up as quickly as possible. The incubator has four investment partners--Aberdare Ventures, Kleiner Perkins, the Mayo Clinic, and Mohr Davidow--that offer each startup a $100,000 convertible note, which is a loan that can be converted to equity down the road. The incubator has formal partnerships with the Mayo Clinic and three other hospitals, as well as several healthcare companies, "Some of the partners do pilot testing with the startups," says Rock Health co-founder Halle Tecco. "They help the startups navigate the corporate world."
StartUp Health takes a longer-term approach to helping entrepreneurs manage each stage of the startup process. The three-year program, which is chaired by former Time Warner CEO Gerald Levin, has a structured curriculum of online classes--all of which are optional to attend--plus quarterly in-person workshops that include meetings with potential partners and investors. The entrepreneurs in the program also can sign up for one-on-one consultations with lawyers, accountants, marketing specialists and other experts. "It's less about making a presentation to a big room full of people in a demo day and more about making targeted introductions" based on each startup's specific business plan, Stoakes says. The program is mostly free, though StartUp Health does take a 2 percent to 10 percent equity stake in each company.
Samer Hamadeh, founder of New York-based Zeel, says StartUp Health helped him transform his three-year-old business from an online directory of alternative health services to a mobile app that allows people to book same-day massages on their smartphones. "StartUp Health created this robust set of online tools that really help you figure out what your goals are and who your customer is," Hamadeh says. "That helped us make the decision [to pivot] and feel good about it."
Hamadeh and others working in health IT say entrepreneurs should choose an incubator whose approach best matches their experience and stage of development. Short-term incubators like Blueprint and Rock Health may be most appropriate for first-time entrepreneurs who need a basic education in navigating the market, while StartUp Health's extended, virtual approach may work for more developed companies. "My team and I have sold two companies and invested in others, so we didn't lack that confidence that we could make something happen," Hamadeh says. "We needed expertise geared at slightly more established companies."
Arlene Weintraub has over fifteen years of experience writing about health care, pharmaceuticals and biotechnology and the author of a book on the anti-aging industry, Selling the Fountain of Youth (Basic Books, 2010).She has been published in USA Today, US News & World Report, Technology Review, and other media outlets. She was previously a senior health writer for BusinessWeek.