It’s not a bubble, really! Or developing? Analysis of Rock Health’s verdict on 2018’s digital health funding.

The doors were blown off funding last quarter, so whither the year? Our first take 10 January on Rock Health’s 2018 report was that digital health was a cheery, seltzery fizzy, not bubbly as in economic bubbles.  Total funding came in at $8.1 billion–a full $2.3 bn or 42 percent–over 2017’s $5.7 bn, as projected in Q3 [TTA 11 Oct]–which indicates confidence and movement in the right direction.

What’s of concern? A continued concentration in funding–and lack of exiting.

  • From Q3, the full year total added $1.3 bn ($6.8 bn YTD Q3, full year $8.1 bn) 
  • The deals continue to be bigger and fewer–368 versus 359 for 2017, barely a rounding error
  • Seed funding declined; A, B, C rounds grew healthily–and D+ ballooned to $59M from $28M in 2017, nearly twice as much as C rounds
  • Length of time between funding rounds is declining at all levels

Exits continue to be anemic, with no IPOs (none since 2016!) and only 110 acquisitions by Rock Health’s count. (Rock only counts US only deals over $2 million, so this does not reflect a global picture.)

It’s not a bubble. Really! Or is it a developing one? Most of the article delivers on conclusions why Rock Health and its advisors do not believe there is a bubble in funding by examining six key attributes of bubbles. Yet even on their Bubble Meter, three out of the six are rated ‘Moderately Bubbly’–#2, #3, and #5–my brief comments follow. 

  1. Hype supersedes business fundamentals (well, we passed this fun cocktail party chatter point about 2013)
  2. High cash burn rates (not out of line for early stage companies)
  3. Unclear exit pathways (no IPOs since ’16 which bring market scrutiny into play. Oddly, Best Buy‘s August acquisition of GreatCall, and the latter’s earlier acquisitions of Lively and Healthsense didn’t rate a mention)
  4. Surge of cash from new investors (rising valuations per #5–and a more prosperous environment for investments of all types)
  5. High valuations decoupled from fundamentals (Rock Health didn’t consider Verily’s billion, which was after all in January)
  6. Fraud or misuse of funds (Theranos, Outcome dismissed by Rock as ‘outliers’, but no mention of Zenefits or HealthTap)

Having observed bubbles since 1980 in three industries– post-deregulation airlines in the 1980s, internet (dot.com) in the 1990s, and healthcare today (Theranos/Outcome), ‘moderately’ doesn’t diminish–it builds to a peak, then bursts. Dot.com’s bursting bubble led to a recession, hand in hand with an event called 9/11.

This Editor is most concerned with the #5 rating as it represents the largest divergence from reality and is the least fixable. While Verily has basically functioned as a ‘skunk works’ (or shell game–see here) for other areas of Google like Google Health, it hardly justifies a billion-dollar investment on that basis alone. $2 bn unicorn Zocdoc reportedly lives on boiler-room style sales to doctors with high churn, still has not fulfilled its long-promised international expansion, and has ceased its endless promises of transforming healthcare. Peleton is a health tech company that plumps out Rock Health’s expansive view of Health Tech Reality–it’s a tricked out internet connected fitness device. (One may as well include every fitness watch made.)

What is the largest divergence from reality? The longer term faltering of health tech/telecare/telehealth companies with real books of business. Two failures readily come to mind: Viterion (founded in 2003–disclosure, a former employer of this Editor) and 3rings (2015). Healthsense (2001) and Lively were bought by GreatCall for their IP, though Healthsense had a LTC business. Withings was bought back by the founder after Nokia failed to make a go of it. Canary Care was sold out of administration and reorganized. Even with larger companies, the well-publicized financial and management problems of publicly traded, highly valued, and dominant US telemed company Teladoc (since 2015 losing $239 million) and worldwide, Tunstall Healthcare’s doldrums (and lack of sale by Charterhouse) feed into this. 

All too many companies apparently cannot get funding or the fresh business guidance to develop. It is rare to see an RPM survivor of the early ’00s like GrandCare (2005). There are other long-term companies reportedly on the verge–names which this Editor cannot mention.

The reasons why are many. Some have lurched back and forth from the abyss or have made strategic errors a/k/a bad bets. Others like 3rings fall into the ‘running out of road and time’ category in a constrained NHS healthcare system. Beyond the Rock Health list and the eternal optimism of new companies, business duration correlates negatively with success. Perhaps it is that healthcare technology acceptance and profitability largely rests on stony, arid ground, no matter what side of the Atlantic. All that money moves on to the next shiny object.(Babylon Health?) There are of course some exceptions like Legrand which has bought several strong UK companies such as Tynetec (a long-time TTA supporter) and Jontek.

Debate welcomed in Comments.

Related: Becker’s Hospital Review has a list of seven highly valued early stage companies that failed in 2018–including the Theranos fraud. Bubble photo by Marc Sendra martorell on Unsplash

The Theranos Story, ch. 49: CEO Holmes reportedly raising funds for a new company–and feeling like Joan of Arc

[grow_thumb image=”http://telecareaware.com/wp-content/uploads/2016/11/jacobs-well-texas-woe1.jpg” thumb_width=”150″ /]Here’s the place where your money will go if you’re an investor. John Carreyrou has now compiled his reporting for the Wall Street Journal on Theranos into a new book, Bad Blood: Secrets and Lies in a Silicon Valley Startup, and it is a Must Read for this Editor and anyone interested in the nexus of Tech, Healthcare, and Hype. (The link goes to AbeBooks, a worthy marketplace for independent booksellers.)

According to Mr. Carreyrou, the founder/CEO Miss Elizabeth Holmes–still leading the company despite settling with the SEC on fraud charges, surrendering her voting control, barred from serving as a public company director or officer for 10 years, and still fighting civil lawsuits–is raising fresh funds for a new venture.

Your eyes did not fool you.

Theranos was a Dogpile of Deceit. From hacking standard Siemens blood testing machines to work with tiny samples, falsifying test results, faking up the Edison test machine, to company financials, it was one lie on the other, chronicled for our Readers in nearly 50 chapters and multiple references. 

Mr. Carreyrou was asked by former Timesman and Vanity Fair reporter Nick Bilton whether, in this unmistakable pattern, Ms. Holmes was a sociopath. Mr. Carreyrou wisely refrained from diagnosis based on a used DSM-V, being a reporter and not her psychiatrist. From Mr. Bilton’s interview podcasted on ‘Inside the Hive’:

“At the end of my book, I say that a sociopath is described as someone with no conscience. I think she absolutely has sociopathic tendencies. One of those tendencies is pathological lying. I believe this is a woman who started telling small lies soon after she dropped out of Stanford, when she founded her company, and the lies became bigger and bigger,” Carreyrou said. “I think she’s someone that got used to telling lies so often, and the lies got so much bigger, that eventually the line between the lies and reality blurred for her.”

Mr. Carreyrou, and by inference anyone who doubted her, like her CFO, and especially those who went public with criticism–well, we are the Bad Guys:

“She has shown zero sign of feeling bad, or expressing sorrow, or admitting wrongdoing, or saying sorry to the patients whose lives she endangered,” he said. He explained that in her mind, according to numerous former Theranos employees he has spoken to, Holmes believes that her entourage of employees led her astray and that the bad guy is actually John Carreyrou. “One person in particular, who left the company recently, says that she has a deeply engrained sense of martyrdom. She sees herself as sort of a Joan of Arc who is being persecuted,” he said.

Mr. Carreyrou was set upon by this ‘martyr’s’ legal pitbulls, one David Boies, until he wisely exited stage left with a bushelful of worthless stock [TTA 21 Nov 16].

(And what is it about Stanford University that fosters people like Ron Gutman, recently ousted from HealthTap over employee abuse and intimidation charges in what may be a Silicon Valley First? [TTA 3 May] Here we have someone who plays with people’s lives and health in vital blood testing. Aren’t some ethics courses long overdue?) 

Mr. Bilton makes the extremely fine point that Silicon Valley will continue to be magnetically attracted to founders equipped with a ‘reality-distortion field’ (as he termed Steve Jobs). SV will relegate Theranos to a biotech outlier. Yet as long as Silicon Valley MoneyMen like Tim Draper will back the likes of Elizabeth Holmes as long as they have a good line of (stuff), despite being embarrassingly proven not just (and only) wrong, but now perpetrating fraud, the Jobsian Myth and black turtlenecks will rise again like Dracula. (Another analogy comes to mind, but precocious children might be reading this.)

We haven’t heard the last of her.

An excellent interview by Tom Dotan of Mr. Carreyrou is podcasted on The Information’s 411 in “You’re So Vein”, which gets the award for Title of the Week (trial signup required, or listen on SoundCloud). Starting at 15:00, interesting comments on the why of Sunny Balwani and Ms. Holmes’ series of ‘marks’ including George Shultz. Also Gizmodo and Politico’s Morning eHealth newsletter.

Health tech founder ousted over alleged ‘acts of intimidation, abuse, and mistrust’: some reflections (Soapbox)

And we thought they were par for the course. Those of us who have worked for company founders, CEOs, and senior execs have learned that some interesting personalities come with the territory, especially in entrepreneurial companies. This Editor has worked for at least one diagnosed ADHD, a bipolar ADHD, another with anger management/impulse control issues, and a gentleman who is now spending a few years in a Federal penitentiary for securities fraud. One of her most memorable CEOs made the cover of Fortune with the caption, “Is this America’s Toughest Boss?” and no, his name was not Donald Trump. (Clue: he was chairman of what was for a time the world’s largest airline conglomerate.)

Of late, there’s been the behavioral quirks of their founders leading to disastrous problems at Uber, Theranos, and Zenefits. It often seems that the more hype, the more sunshine, daisies, puppy dogs, mission, and ‘fab culture’ are on the website, the worse the dysfunctional reality and mistreatment of the troops.

Perhaps no longer. Monday’s very public firing by his board of Ron Gutman, CEO of HealthTap, a digital health all-over-the-map company that now has settled into a members-only patient-doctor mobile health platform, over non-financial behavior may be a first. Mr. Gutman was given the heave-ho by his board after, notably, months of effort. Recode cited a termination letter to him that he “committed acts of intimidation, abuse, and mistrust, and that [he] repeatedly mistreated, threatened, harassed and verbally abused employees.” The coup de grâce: “The toxicity you introduced into the workplace ends now.”

An all-hands memo to employees was more restrained:

After receiving concerning reports by employees about Ron’s conduct as CEO, the Board of Directors hired an outside law firm to conduct an investigation into these allegations. What we learned left us with no choice but to make this change, and we did so after taking the necessary steps from a corporate governance perspective.

The replacing CEO is Bill Gossman, a serial founder and a partner in one of the investors, Mohr Davidow Ventures.

Mr. Gutman has denied it all, stating that he did not abuse employees and that the VCs are in violation of their duties. (FYI, not a whiff here of #MeToo antics.)

Funded to the tune of $38 million by Khosla Ventures, Mayfield Fund, and Eric Schmidt’s Innovation Endeavors, but without fresh funding in five years, the public face of both Mr. Gutman and HealthTap (of which he is the very public face, appearing all over their website still) is one with a very large smile. Mr. Gutman gained some fame from his TED talk and book on the power of smiling. One wonders how the smile is doing today. A frown turned upside down. TechCrunch, Mobihealthnews

The REAL acute care: hurricanes, health tech, and what happens when electricity goes out

This afternoon, as this New York-based Editor is observing the light touch of the far bands of Hurricane José’s pass through the area (wind, spotty rain, some coastal flooding and erosion), yet another Category 5 hurricane (Maria) is on track to attack the already-wrecked-from-Irma Puerto Rico and northern Caribbean, thoughts turn to where healthcare technology can help those who need it most–and where the response could be a lot better. (Add one more–the 7.1 magnitude earthquake south of Mexico City)

Laurie Orlov, a Florida resident, has a typically acerbic take on Florida’s evacuation for Irma and those left behind to deal with no electricity, no assistance. Florida has the highest percentage of over-65 residents. Those who could relocated, but this Editor from a poll of her friends there found that they didn’t quite know where to go safely if not out of state, for this storm was predicted first to devastate the east coast, then it changed course late and barreled up the west (Gulf) coast. Its storm surges unexpected produced record flooding in northeastern Florida, well outside the main track. Older people who stayed in shelters or stayed put in homes, senior apartments, 55+ communities, or long-term care were blacked out for days, in sweltering heat. If their facilities didn’t have backup generators and electrical systems that worked, they were unable to charge their phones, use the elevator, recharge electric wheelchairs, or power up oxygen units. Families couldn’t reach them either. Solutions: restore inexpensive phone landlines (which hardwired, mostly work), backup phone batteries, external power sources like old laptops, and backup generators in senior communities (which would not have prevented prevent bad fuses/wiring from frying the AC, as in the nursing home in Hollywood where eight died).  Aging In Place Tech 

It’s another reason why senior communities and housing are supposed to have disaster preparedness/evacuation plans in place. (If you are a family member, it should be included in your community selection checklist and local records should be checked. This Editor recently wrote an article on this subject (PDF) that mentions disaster and incident planning twice. (Disclaimer: the sponsoring company is a marketing client of this Editor.) In nursing homes, they are mandatory–and often not executable or enforced, as this article from Kaiser Health News points out. 

Another solution good for all: purchase 200-400 watt battery packs that recharge with solar panels, AC, and car batteries (AARP anyone?). Campers and tailgaters use these and they range below $500 with the panels. Concerned with high-power lithium-ion batteries and their tendency to go boom? You’ll have to wait, but the US Army Research Laboratory and University of Maryland have developed a flexible, aqueous lithium-ion battery that reaches the 4.0 volt mark desired for household electronics without the explosive risks associated with standard lithium-ion power–a future and safer alternative. Armed With Science

Telemedicine and telehealth are not being fully utilized to their potential in disaster response and recovery, but the efforts are starting. Medical teams are starting to use telehealth and telemedicine as adjunct care. It has already been deployed successfully in Texas during Harvey. Many evacuees were sent to drier Dallas and the Hutchinson arena, where Dallas-based Children’s Health used telemedicine for emergency off-hour coverage. Doctor on Demand and MDLive gave free direct support to those affected in Texas and Louisiana through 8 September, as well as Teladoc, American Well, and HealthTap for a longer period to members and non-members. Where there are large numbers of evacuees concentrated in an area, telemedicine is now deployed on a limited basis. Doctor on Demand releaseSTAT News, MedCityNews 

But what about using affordable mobile health for the thousands who long term will be in rented homes, far away from their local practitioners–and the doctors themselves who’ve been displaced? What will Doctor on Demand and their sister telemedicine companies have available for these displaced people? What about Puerto Rico, USVI, and the Caribbean islands, where first you have to rebuild the cellular network so medical units can be more effective, then for the longer term? (Can Microsoft’s ‘white space’ be part of the solution?)  

One telehealth company, DictumHealth, has a special interest and track record in both pediatric telehealth and global remote deployments where the weather is hot, the situation is acute, and medical help is limited. Dictum sent their ruggedized IDM100 tablet units and peripherals to Aster Volunteers who aid the permanently displaced in three Jordanian refugee camps in collaboration with the UNHCR and also for pediatric care at the San Josecito School in Costa Rica. In speaking with both Amber Bogard and Elizabeth Keate of Dictum, they are actively engaging with medical relief agencies in both the US and the Caribbean. More to come on this.

6 helpful hints for healthcare startup founders–and funders

Investor Skip Fleshman of Palo Alto (of course)-based Asset Management Ventures has six points of sound advice for founders and developers–and funders of same–who think that their Big Idea(s) are the one thing which will revolutionize healthcare, particularly because of their personal experiences. We’ve observed that successful startups have fitted themselves into the Healthcare Establishment’s game [TTA 19 May], but if an investor is still seeing that attitude, it’s still there. AMV’s track record is there with investments in several healthcare companies, including Proteus Digital Health and HealthTap. Mr Fleshman’s points with this Editor’s comments:

1. Listen to the market–and it’s not direct-to-consumer, despite a cursory reading of Eric Topol. Find where your product or service can reduce or avoid cost, increase engagement and improve quality i.e. patient outcomes (which are all linked, see #4)
2. Hire people who know how to speak the language–experienced healthcare people who can work the system but also get the changes and want to make a difference. And no, they may not look or act like you. They’ll often have gray hair and families. Unless they are independently wealthy, they also expect to be paid decently. Quite a few will be women who don’t act or look like you either, but are invaluable in your organization in multiple ways.
3. Understand how the money flows–and the money is with providers, payers, self-insured employers and (Mr Fleshman doesn’t mention this) government (Medicare, Medicaid, the alphabet soup of HHS, CMS…). The incentives (shared savings) are now to providers to pull cost out of their system but somehow maintain population health quality and outcomes. How to pull this off is where the innovation is needed. Partner wherever you can–and this Editor would add, with other successful early-stage companies as well.
4. Read the Affordable Care Act–with a bottle of painkillers and eyedrops. (more…)