Home Health Care Why healthcare startups fail and 5 that bit the dust in 2018

Why healthcare startups fail and 5 that bit the dust in 2018

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For some companies, 2018 was a breakout year. Healthcare startups secured funding, brought new products to market and expanded their teams. But for others, the year was marked by failure.

Why do some startups achieve success but others ultimately meet their demise? Two VCs weighed in.

In a phone interview, Flare Capital Partners co-founder and general partner Michael Greeley said that the healthcare industry now has a “smarter, more sophisticated customer base.” Startups’ clients are better able to appreciate the ROI and have a better sense of what the need in the market is. Some startups fail because they lose track of what matters to their customers, Greeley said.

Investor Lisa Suennen, who will soon join Manatt, Phelps & Phillips to head up its digital and technology businesses and the firm’s venture capital fund, said another reason for failure is spending too much money before identifying a market and product market fit.

“Healthcare is particularly challenging because the sales cycle is incredibly long and most companies do not manage cash well through that long journey to revenue, being too optimistic of their ability to gain market share,” she said via email.

In the medical world, startups using a direct-to-consumer approach “have a particular struggle” since few consumers want to invest time and money in their healthcare, Suennen added.

With those thoughts in mind, let’s take a closer look at five startup failures that MedCity covered this year. Some play directly into the causes that Suennen and Greeley outline with one big, notable exception. 

Just two months after its September launch, Driver — a firm whose goal was to connect cancer patients with treatments and clinical trials — shut down due to a lack of money. Though it had a network of more than 30 of the world’s largest cancer hospitals and the financial backing of Hong Kong billionaire Li Ka Shing’s Horizon Ventures, its direct-to-consumer model didn’t pay off. In a phone interview, co-founder and CEO William Polkinghorn said the high price tag (a $3,000 initial sign-up fee followed by a $20 charge per month) “definitely played a role” in the low numbers.

Lantern, a San Francisco-based mental health startup, folded commercial operations effective August 1. Its app allowed users to complete a self-evaluation assessment. It then provided daily exercises, which helped people pinpoint and restructure negative thoughts. A post on Lantern’s site read: “After some trial and error in the direct to consumer and employer spaces, we ultimately pursued a strategy of alignment with traditional healthcare insurance companies. Healthcare moves very slowly and we made the mistake of misjudging the time it would take to achieve sustainable revenue through this approach.”

CareSync, a Florida-based care coordination business focused on Medicare patients, discontinued operations in June. Co-founded by CEO Travis Bond and James Grant, the company cut most of its staff in its two offices, including Tampa and Wauchula. “These events occurred despite the company’s best efforts to raise additional capital or find a strategic partner to enable the company to continue operations,” stated a recording on CareSync’s main phone number.

Philadelphia-based CloudMine, which offered the ability to build digital apps through a HIPAA-compliant cloud-based healthcare platform solution, filed for Chapter 7 bankruptcy in November. Founded in 2011, it aimed to help providers pharma companies, payers and others develop and manage digital health applications. The startup, which garnered customers such as Thomas Jefferson University Hospitals, had a slew of investors including Safeguard Scientifics, Dreamit Ventures, and Ben Franklin Technology Partners.

To no one’s surprise, Theranos came to an ignominious end when in September the once-lauded diagnostics company said it would dissolve. Founded in 2003 by Elizabeth Holmes, it wooed investors with the promise of performing tests on only a small amount of patients’ blood. It managed to secure a partnership with Walgreens, even though it had to void or correct thousands of inaccurate test results. In June, Holmes and former COO and president Ramesh “Sunny” Balwani were indicted on federal charges of defrauding investors out of hundreds of millions of dollars, along with physicians and patients.

Photo: flytosky11, Getty Images

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